India’s real estate sector has been interlinked with the economic growth and in 2013 the sector had been plagued by several adverse factors like lower economic growth rate at 5 per cent, depreciation of Indian rupee against dollar, monetary tightening by RBI and others.
While political imbroglio in southern states was the root cause of major problems in the real estate sector, dipping margins and inflationary pressures are other factors that deterred the construction activity. All this has led to a dip in new project launches and execution delays in many parts of the country.
On the residential front, the number of residential project launches has dipped by about 12 per cent in 2013 from 2012, according to a report by Cushman and Wakefield.
Sales volumes dipped by 15-40 per cent. Residential unit prices rose by over 50 per cent on an average across the country over the last four years. In some of the southern states, apartment units below Rs 1 crore were driving the sales. High-end homes in the category of luxury apartments and villas have reported moderate response across select cities.
Plotted development projects are the favorites among investors as it serves as a hedge against inflation. The fact that investment in land has been consecutively yielding 15 per cent annualized return is yet another major driving force.
Industrial land is yet another option for the entrepreneurs and those looking at funding the project level entities. However, availability is a major constraint. There are areas where the capital appreciation was 40-50 per cent for industrial land.
The timing is just appropriate now for people looking at a long-term investment option to enter residential sector as fiscal sops, phased payment options and bargain deals flourish amidst liquidity crunch, postponement of new launches and dipping sales, say property consultants. A few developers are able to drive commitment from investors for prelaunch sales to tide over the working capital requirements. On an average, apartment prices appreciate by 18-25 per cent during the project implementation period spanning 2.5 to 3 years across select cities.
According to Jones Lang LaSalle’s report, two kinds of polarization in commercial space demand were witnessed across all cities. First, as office consolidation was pursued, front-end operations were separated from the back-end space for the latter relocated into cheaper suburban precincts, while operations of the former remained in CBD or SBD locations. Second, while vacancy rates have raised pan-India, this was largely due to increasing supply in the suburbs.
Realty Investment has an edge over others Time and again, real estate as an asset class has proven to be the best investment avenue for investors in India. In terms of return on investment, real estate has outperformed all other asset classes. The current value of Rs10 million invested in each of these assets is Rs18 million, Rs 46 million, Rs 60 million, Rs 54 million, and Rs 101 million respectively. It is evident that out of all the assets, real estate has by far proven to generate the largest and quickest returns.