1. What is the market overview in the residential and commercial real estate market in 2013? Please discuss the trends you have noticed which will be shaping up the demand curve in 2014.
2013 saw a lot of key external factors affecting the residential real estate market. RBI guidelines, revisions on FDI, the draft Real Estate Regulation and Development Bill and a volatile economy are among a few.
The Real Estate Regulation and Development Bill, can be seen as a positive change towards a more organized and transparent approach to real estate in India. But with elections coming up, the fate of the Bill and it’s current form faces an uncertain future.
The change in RBI guidelines on the 20:80 funding have had a serious impact on builder cash flows. Most builders have highly leveraged balance sheets and the slowdown in demand has led to a serious pile up of inventory in most cities.
Transparency issues and associated risks with the residential real estate market too act as a deterrent for foreign investors. The REIT market for commercial real estate is just beginning to see some action. In the current scenario, organized bulge bracket investors see commercial real estate more favorably than the residential market.
Overall, the Bangalore market seems to have a stable outlook with no serious price hikes in the last year and a healthy addition of projects. However, the unsold inventory (20-22 months) in the Bangalore market is at an all time high historically, but by numbers is better performing than all other Indian cities. Developers in Bangalore have continued to hike prices albeit marginally, but buyers have shown a reluctance to come in at the higher rates. A subdued outlook on the economy coupled with high interest rates play a significant role in pulling down demand. We expect that over the first half of 2014, something will have to give in. Builders sitting on stockpiles of unsold inventory could be forced to lower prices to sell. Pricing being the key issue, buyers have been showing a preference for newly released stock which come with attractive pre-launch and launch offers. This inordinately prolongs the sales cycle for the ‘tail’ end of unsold stock and will have significant effect on builder liquidity in the coming year. The demand curve in the next year will largely depend on this.
2. Will the supply graph be adequate enough to meet the demand expectations of the consumers? Where do you foresee the major traction taking place (in rentals or buying activities)?
There is already an adequate supply in the Bangalore Market and the absorption despite slowing down is not in the danger zone. Unlike most other markets, the Bangalore real estate market is governed more by demand rather than speculation. The demand is spurred by knowledge workers in the IT-ITES sector and that is expected to remain largely stable in the coming year. The luxury housing sector still sees reasonable demand but the recent launches have seen some price corrections. The mid value housing sector sees good demand in specific areas and is also
abundant in supply. The budget homes category will witness the highest demand in the outlying and newer areas of the city, especially because there is a good deal of price flexibility that developers display. The locational preferences are based on factors of affordability, followed by urban and social infrastructure to support living. Yet, within each of these sectors, price is still seen as the largest pain point amongst buyers. The investment market will therefore see less traction than the end-user market.
The residential rental market sees a continuous demand with the city still bringing in more workforce, year after year. Although save a few areas of the city the rental values are on the rise. It is expected that rentals will go up further due to slowing demand and delay in handover of under construction projects in the coming year. While the upwardly mobile migrant population is going to lean towards a property purchase in a few years from moving to Bangalore, it is likely that they will defer their decision in the short term unless price points are attractive enough to spur demand.
All this means, that buyers are firmly in the driver’s seat in 2014 with greater negotiating power. If you are buying a property to live in, then this may be the best time to do it.
3. Foreign investors are investing in Indian real estate builders for world-class projects. According to you, what will be the trends in this space? Do you see the investment picking up in 2014? Also, please discuss the impact it will have.
The foreign investments in the residential sector have been on a decline for a while, unless it is with A grade builders. This is largely due to factors such as delays and lack of transparency which are associated
with high risks. The Real Estate Regulation and Development Bill can change that situation, if the bill gets passed. The regulatory body will not only ensure more transparency, thereby boosting demands, but also help in complying with more international standards. Policy makers will have to prescribe reforms which are more acceptable to global investors to increase foreign funds. The entrance of foreign investors in the residential sector will create a healthy competition in the market, while keeping the consumer safe.
Foreign investments into the commercial sector is likely to increase with the formation of REITs. Commercial office spaces with long term lease agreements are going to attract more such investments.
4. What trends do you foresee among NRIs in the real estate space for 2014? Will they continue to invest in real estate as a preferred option? Please state the reasons.
NRIs invest into real estate in India with a hope to return back some day or because they will need a property when they eventually return back. The latter is true for countries where you cannot buy property unless you are domicile resident citizen of that country.
With the rise of the dollar against the rupee, it makes it quite attractive for NRIs to invest into India. With the US bond buying support getting tapered off, the rupee may depreciate a bit further. But the key factor keeping NRI demand from going up further in proportion is the lack of transparency, clean titles and an after sales, asset management solution to manage things in their absence. The real estate bill and better transparency will definitely help drive NRIs to buy more into the real estate market.
5. Can stability or growth be expected in overall national real estate market? Please state the pockets/cities which are likely to do well in 2014.
Stability, yes. Growth is expected to be muted until a new government is formed after elections. Cities with large pile up of inventory like Mumbai, NCR and Chennai are likely to witness a slow down. Some pockets within NCR like Greater Noida may do well. Bangalore, by far is expected to outperform all other markets in 2014. Pune is expected to do reasonably well. Hyderabad has witnessed lackluster performance in 2013 due to the uncertainty, but may see some renewed buying as things become clearer and since the market has almost bottomed out.
6. According to you, will middlemen continue to stay in focus for real-estate deals in 2014? Please share your view on why there is a need of direct builder/promoter-buyer interaction and will this trend grow in 2014.
Middlemen play a pivotal role in the speculative market. In a subdued market for speculators, the role of middlemen gets diminished. Middlemen typically look at short term gains and they represent the
builder in a transaction because they get their payouts from them. So it is nearly impossible to get an unbiased view when it comes to new property buying.
In ideal market conditions where most buyers are end users, there is absolutely no need for middlemen in the budget to mid-value property segments. Most buyers in these categories are people who clearly fall into the D-I-Y (Do it Yourself) segment where they don’t mind spending time on researching, speaking to friends, fellow buyers before taking a call. The biggest stumbling block for these sets of consumers is the lack of authentic information and transparency. If builders can be transparent and forthcoming, then buyers would prefer to one-to-one dialogue and would enter into the transaction, fully aware of the risks and returns therein.
In the luxury and super premium segments where buyers are not D-I-Y is where middlemen (the professional firms) can play a role in assessing the needs and finding a good fitment. It may also work with the speculative investor class.
Already, a few like us have taken the step towards facilitating direct builder-buyer interaction. For instance, on our website (support.homeshikari.com) prospective buyers can directly contact the sales team of the builders without fear of getting spammed / cold called or can choose to take our help to shortlist properties that meet their needs. Since we are not a broker, we are able to give an unbiased shortlist and then we facilitate direct contact, once the buyer is genuinely interested. This helps in curating leads better and offer only serious interested prospects to the builder community. Since we are not a broker and adhere to a code of conduct, with respect to ‘no spam, no private information shared’ prospects are more comfortable to do the initial due diligence through us, before initiating direct contact.
This is a trend we have noticed and we are confident that more and more people will go direct, if options such as these are presented to them. The fact of the matter is that middlemen in most cases don’t add any value or have any special information advantage over the buyer, when it comes to new property.
7. What are the plans of HomeShikari.com for 2014? Please answer with an overview.
Coming up with an accurate estimation model for home pricing based on a combination of listing data, real time search volumes and their trends.
The key problem in the Indian real estate is the lack of accurate information to make an informed choice. The middlemen while having relatively better information are also handicapped. The only information that they probably have better access to, is availability. The rest is a matter of reverse bidding and price discovery, which middlemen do more efficiently than end users.
If you can provide reasonably accurate information for both buying and renting, based on real time data then you are able to give clear benchmarks for end users; be it home owners, landlords, builders, tenants to base their pricing around it.
Any such pricing estimation model should take into account the Indian non-homogeneity that exists within a street, within a locality and sometimes even within a single apartment complex. That requires significant amounts of data that go beyond mere price/sft data and looks at both hard specifications and the soft aspects of the house at its surroundings. With our field force, we have the wherewithal to come up with such a model that we hope will eventually become the gold mark for real estate pricing.
Further, there are plans to launch in other major cities in the coming fiscal. Our play is not merely online, but a combination of online play with offline services that enable transactions and bridge trust gaps. So our entry into newer markets will be slower, but with far greater engagement and depth than other players.