2009 will separate men from boys in real estate

Global uncertainties arising out of the sub-prime meltdown, a slowdown in US and weakening of the dollar, the ripple effect has also been felt in India.

With inflation no longer a worry and with the threat of a slowdown looming large, the Indian government is going all out to give the necessary boost to the economy, including the real estate sector. Amir Hashmi, Correspondent, HT Estates speaks to Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj on what can be expected in 2009.

Since India is not isolated from the global meltdown, what more can be expected in the real estate space in 2009?

The recent measures taken by the RBI will need to couple with lowered property prices and further injections of liquidity to effect any significant changes.

Until then, domestic demand is likely to sink even further, and international interest will remain at cautious levels before the situation gets better. There has already been an overall drop of demand to the tune of between 45-50%.

We expect these figures to reflect a more positive scenario in 2009, at least with respect to residential real estate.

The fallout of the ongoing financial crunch and a justified watch-and wait stance by homebuyers will set some badly needed market adjustments in motion between January and March, 2009.

We also expect that, in 2009, the circumspection currently evident on both the domestic and international investor fronts will give way to cautious forays.

A decisive turnaround phase will come only in another 18 months to two years, but 2009 will see the groundwork for revival being put in place.

In terms of liquidity, we will definitely continue to have a challenge situation on our hands.

However, in 2009, we expect more innovative financial structures and liquidity mechanisms to ensure that delivery of the development pipeline is not affected.

Is 2009 actually the ”Year of Turnaround?” Or is the worst yet to come? If so, what can we expect?

The structural adjustment programme of the early 1990s initiated the liberalization of the Indian economy. High appreciation rates on India’s property market began with the reduction of interest rates that the NDA Government instituted after 2001.

In early 2004, home loan rates sank to a record low of 7.5% and this paved the way for the alarming spiking that previously typified the country’s property rates in many Indian cities.

The very amenable borrowing rates encouraged individuals to avail of home loans to buy residences, where actual property purchase had only been an option for the considerably rich before that.

This resulted in a huge demand for quality real estate all over the country post 2003. After March 2005, Indian real estate rates displayed an unstoppable upward curve - until the meltdown that began in late 2008.

No matter what it took to rationalize the market, we are still talking about a badly needed correction here.

Yes, 2009 will indeed be a turnaround year that will decisively separate the men from the boys, finally introduce new transparency parameters and keep the focus squarely on the end user.

Are government sops / stimulus packages enough to revive demand in realty - across residential, commercial and retail properties?

No. Players need to rationalize their asking rates, and end users must have the maturity to abandon their chronic watch-and-wait stance and make their move when the rates fall into their purview of affordability.

Only when Government initiatives dovetail with the positive actions of developers and end users will the market see renewed demand again.

What more policy initiatives can be undertaken in such a grim / dampened scenario for real estate sector to ensure more transparency in land / real estate dealings?

The introduction of a proper system for accreditation for those engaged in land valuations and a uniform stamp duty structure for all states in India would be a decisive step forward.

However, we are on the whole convinced that the Government is doing all it can under the present circumstances.

Is it a good time to invest in Tier-II cities? Why / why not?

Developers are currently focusing on market catchments that they are familiar with, and where there is established rather than projected demand.

This, in the current context, means the metros rather than Tier II cities. Certain Tier II cities such as Pune and Hyderabad continue to offer good investment potential, but investments must be done judiciously and in context with local market expertise.