By S K SayalFor India's real estate sector, 2015 presented a mixed bag of positive and painful pointers. The NDA Government's focus on infrastructure development, affordable housing for all and the 100 Smart Cities' mission are positives that will address infrastructure and housing shortfalls. On the policy front, passage of the Real Estate Regulation Bill, single window clearance mechanisms and relaxation in FDI norms will boost transparency and foreign inflows.
On the flip side, inventory levels built up as sales continued to stagnate in the first three quarters. Despite some pain points, inflation is under control and the realty scenario is slowly turning around.
Nonetheless, the presence of some green shoots spells good news. One surprising report was that investments of almost $8 billion (Rs 53,000 crore) have entered the sector, touching a seven-year high. The inflows came largely via private equity (PE) investments and non-convertible debenture borrowings. These indicate PE and other long-term investors are willing to wager on Indian realty, confident the sector will bounce back soon.
Meanwhile, the commercial segment performed relatively better than residential. Yet, attesting to the allure of the residential space, most investments happened here, with commercial attracting less than one-fifth of PE inflows. As sentiment slowly turns positive, 2016 is likely to see better demand for commercial and residential units. Also with the large corporates strengthening their footprint in the realty sector customers can be sure of the critical aspects like quality and timely delivery.
But the role of banks in lowering interest rates will be crucial. RBI Governor Raghuram Rajan cut interest rates more than once, for a total drop of 1.25% during 2015. Unfortunately, banks did not proportionately pass on the benefits to customers, giving less than half this total. Let's consider the brighter side, though: this leaves headroom for more rate cuts in 2016 as banks vie for customers.
In the interim, the market will continue its incremental recovery, although quality projects would attract strong customer demand. While economic parameters point to an undercurrent of recovery, customer sentiment will be the eventual arbiter for any turnaround. Come 2016, the realty sector may witness its long-awaited recovery as fence-sitting home-seekers finally take the plunge to purchase their dream homes.
The author is MD & CEO, Bharti Land Ltd
