General Election 2009 and the anticipated impact on the Real Estate Sector

Post-Election Projection of Economy and Real Estate The mandate of the people of India during this election was clearly for continuity, stability and growth. Industries that foster employment, development and public infrastructure should be at the core of the government’s positive agenda. There being hardly any impediments in the way of the government’s measures towards their liberalization and growth thrusts this time around, the industry expects benchmark steps in this regard more so with the kind of effective team both of the young and old that Dr.Manmohan Singh has selected. Infrastructure is expected to drive growth not to mention the impetus it will give to Commerce and Power.

Signs of revival in Real Estate Sector

Industry sentiment is that the new UPA government will take special measures to bring down the interest rates further to enable the public at large to buy houses. The mantra for developers like us in the present times is to be aware of the markets (realistic demand and supply) and of course what the competition is offering.

To begin with, we are expecting to get clarity from this government on foreign direct investment (FDI) in retail. The real estate industry requires liberalization in the retail sector for the much needed fillip, especially now when the sector is reeling under a slowdown. With the opponents of FDI in organised retail biting the political dust in 2009, retail players are hoping to expand, especially by way of foreign investments. In 2006, the UPA had encouraged organised retail by opening up FDI in single brand outlets by up to 51%. Unfortunately, the same was not permitted for multi-brand outlets because of the constraints of differing coalition partners at the time. Given that there are many big brands looking at India, government policies will hopefully begin to reflect the greater value, convenience and employment opportunities that retail growth represents for Indian consumers and the real estate industry.

The real estate sector experienced a severe slowdown in demand because of rise in interest rates in January-March 2008 by almost 2 percentage points to 12%. At the same time, the prevailing prices of residential apartments in most cities made them unaffordable. The situation further worsened after global financial markets got affected due to the failure of banks and brokering houses in the US and Europe. This also affected the Indian real estate market as demand plummeted.

After the heavy slowdown during the third and fourth quarters of 2008, the real estate sector has shown some recovery in the first quarter of 2009 ending March 31, albeit in the affordable category. The main reason for increase in absorption of the new launched products is drop in per sq. ft. rate as well as reduction in the size of the units, which in turn brought their prices within the affordable range of buyers. Most of these units were launched at a price that was almost 60% lower than the average pricing of apartments that were available in the first quarter of 2008. The average unit size of these apartments was also lower by almost 50%. This encouraging trend is indicative that the markets are poised for a recovery if proactive measures are adopted by the real estate community to offer the right product at the right price to consumers.

For a buyer or investor to understand the market more clearly before making a decision he/she must understand at which juncture the market is hovering; and to also take into account new government policies and their expected impact in the coming months.