B&E: Despite a sluggish economy, many market watchers believe that the real estate market will continue to grow. What do you think are the reasons for such optimism?
Brotin Banerjee: A growing economy and a robust demand for both commercial and residential units will continue to drive growth for the sector. The mismatch between demand and supply is also a big driver. Growing requirements of space from sectors such as education and healthcare provide opportunities in the real estate sector. Residential space demand is expected to grow at a CAGR of 19% between 2010 and 2014 and Tier 1 metropolitan cities are expected to account for about 40% of this. A booster for industry is the approval of foreign direct investment of up to 100% for developing townships. Moreover, the Government has raised the housing loan limit to $ 52,080 for priority sector lending besides offers of more tax incentives and long tenure loans. Other factors such as rapid urbanization and change in lifestyle (from joint family to nuclear) are leading to a huge demand for housing units.
B&E: How do you see the current sluggish environment for the real estate sector in light of the fact that home sales fell 13 % in Delhi-NCR in the June quarter?
BB: Needless to say, the economic slowdown has certainly impacted the real estate sector. Demand for real estate in some areas took more time to pick-up compared to others. Combine this with the fact that policy rates were steep, until the recent past, which too affected demand. But then again, every sector goes through its crests and troughs and the real estate sector possibly cannot remain untouched. More importantly, with the GDP dropping from near-9% to 5%, coupled with rising inflation and therefore, input costs — demand is bound to be tepid. But we believe that in the last few years, Delhi-NCR has been aggressively growing, particularly in terms of residential and commercial realty. The addition of towns such as Faridabad, Gurgaon and Noida, and now Bharatpur, Bhiwani and Mahendragarh to NCR along with large corporates setting up plants in this area has resulted into a huge demand for space that Delhi has not been to fulfill because of the lack of available land. So it is important to stress that the sector’s growth rides on the back of ever-increasing demand, which will never allow growth to fall to worrying levels. Therefore, we expect a bright future and an upward trend in the property prices in the NCR and other regions as well.
B&E: During HDFC’s annual general meeting recently Chairman Deepak Parekh observed that real estate prices should come down. He also commented that the commercial real estate segment has collapsed and the prices of commercial properties are unlikely to rise? What is your view on this?
BB: We don’t see prices coming down substantially in the near future. Some developers are offering discounts when you negotiate with them but that cannot be seen as an industry scenario.
B&E: Though property rates continue to remain sky high in Delhi- NCR, the actual demand for property in these cities is not that high. It seems that the builder lobby in Delhi-NCR is responsible for creating a property bubble. What do you think?
BB: Since we don’t indulge in such practices it would not be right for us to comment on what others are doing. We anticipate that the real estate sector in India will continue to grow, as the demand for housing exceeds supply, and the weakening rupee makes India an attractive real estate investment destination for NRIs. Moreover, the sector is set for robust inflows of $ 4-5 billion from overseas investors in the next couple of years, with Bangalore, Delhi and Mumbai emerging as the favourite destinations for investments.
