In coming years, India and China are expected to
outperform the global markets with a growth rate in the range of 7-10%. This
will benefit all sectors, particularly the real estate, which is closely linked
to high growth in the economy.
A decline in property prices, falling interest rates
and stability in the job market has helped the sector gain momentum once again.
As developers realized that affordability was the key to lure buyers, they
experienced with ‘no frills’ smaller apartment sizes. Projects that were
launched in this segment received a good response, which indicated that
home buyers were waiting for a good opportunity to make an entry.
It is not only the listed players but also the unlisted
players that have realized that affordable housing is the way to grow. Listed
players who have committed huge investments towards low-cost housing projects
are Unitech, Puravankara, DLF and Omaxe. Amongst the unlisted ones, Tata
Housing is championing the cause of housing of the lower middle class.
Following closely are Raheja of Delhi; Mumbai-based Matheran Realty, Lodha
Group and others.
Global property consultancy firm Knight Frank has
estimated that affordable housing requirement would be in excess of 2 million
units across key cities in India and 80% of demand is expected to originate
from the Rs 3-5 lakh income group. It is seen that real estate, sector is
realigning its focus towards affordable housing and is estimated to reach a
whopping market size of over Rs 3 lakh crore by 2011. With the sixth pay
commission being implemented, those government employees who could not
participate in the earlier real estate cycle will now be participants in the
market. This, along with private sector employees who had postponed purchasing
homes due to uncertainty in the market, would also be scouting for good
bargains.
The combined effect of increasing sales and
restructuring a major portion of debt has improve the liquidity position of
most of the developers. An equally important timing of the upturn in the equity
market opened another option of fund raising for these cash-starved companies.
Realty stocks had corrected 80-90% over January ’08 – March ’09, but rebound
back significantly. A number of builders including the likes of Unitech,
Indiabulls Real Estate, HDIL., Orbit, DLF and Puravankara took advantage of
this and either announced or raised foreign money in the past two-there months.
This funding has come at the right time as it boosts the retail investors’
confidence in the sector.
As more funds become available, developers will divert
all focus towards completing under construction projects. This, coupled with
stable commodity prices, will help in faster execution of projects, leading to
releasing of piled up inventory and rolling of the cash flow cycle. If the
builders continue with a low price regime, then there is tremendous housing
demand to be met. However if developers become too optimistic, as is visible,
and start increasing prices, it could turn out to be a big blow to the
industry, which is still recovering from its recent fall.
Despite the fact that stocks are still 20-30% off their
highs, factors like strong balance sheet position, increased liquidity
infusion, a stable government, and an improved employment scenario, suggest
that there is a fair chance that going a head, the sectors fundamentals may
improve. Though it might be premature to speculate a swift recovery at this
point, there are convincing signs that show the sector is moving towards a
revival.
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