Introduction to Real Estate in India

When you pass out from your college or having just 1-2 years of working life , you are at a crossroad , not sure which direction to go. You consult various people or even get career advises without asking for.

There are too many lines to go in for which ads to your confusion. This is the point where you have to take a decision as to which field you will make your career in.

Real Estate is one of the most rewarding lines which you can think of choosing . It is a line which has always maintained its steady growth and has proven to be rewarding for most of  the people.

Currently going by the statistics available there is a shortage of 3.2 Crore houses in India , which will touch 11.6 Crores by 2022. So these figures speak of potential of this line. Seeing the potential more & more people are venturing in it.

Global CEO of international property consultancy Jones Lang LaSalle, recently spent a week in India to meet up with key clients and review the company's operations. Following are his real-time observations on the Indian Real Estate market :

India Investments Vs. The Other BRIC Countries

Interest from international Real Estate investors in Indian Real Estate has been limited in 2012.  India has witnessed 6% q-o-q growth in direct commercial Real Estate in Q1 2012, as compared to China which has seen negative growth of -45%, however China performed better in Q2 2012 on the back of one mega deal. In Brazil, investment volumes seem to be reaching a more 'normalized', sustainable pace following the supercharged 2010-2011 period.

Broadly, India has seen roughly 18 Billion US$ being invested in Real Estate over the past 7 years. With 3.4 Billion US$ of exits.

India remains an attractive investment opportunity and foreign investors are definitely participating in situations that offer higher risk adjusted returns like buying stabilized leased assets and providing receivable-based 'mezz' financing against housing sales. 

Also, foreign investors are looking at putting capital behind successful investment managers and are many also directly investing in India on a selective basis.

The Challenges And Outlook For Indian Realty

The challenges that I see for Indian Real Estate, now and in the near future, are the expensiveness of liquidity for Real Estate, the lack of availability of serviced urban land, continuing procedural delays in approvals, the slow pace of infrastructural growth and the fact that the country still has relatively low transparency in Real Estate terms.

In retail Real Estate, we are seeing a process of polarization - superior malls are with low vacancy and high rents, while inferior malls are failing to lease despite heavy rental discounts. Many new malls that are now completed or are under construction are superior, which is a definite sign of the market maturing.

The Global Economy's Effect On The Indian Property Market

Of the three primary Real Estate sectors, commercial property is most closely linked with global economic dynamics.

In residential Real Estate, Mumbai and Delhi have emerged as chart-busters. In these cities, residential rates have already crossed and surpassed the peak levels. However, the inherent demand for residential properties in these cities is very high and supply is constrained.

There have been fewer launches of late, and developers' input costs have gone up, reducing their profit margins. It is not likely that residential prices in Mumbai and Delhi will fall in the foreseeable future.

On a more general note, there is a possibility in residential corrections in some cities, depending on the level of stress project developers are under at a company level, rather than at a project level. When it comes to projects, there is a likelihood of price rationalizations in large townships in the extended suburbs, because absorption of residential spaces takes much longer in such projects.

Retail Real Estate demand is only indirectly related to the global economic fluctuations. Retail health derives from consumer demand, which again is covered by domestic factors such as high inflation and reduced agricultural performance. We will know more by the end of the year, which is the time when salaries are usually revised. If salaries are not revised upwards or remain stagnant, there will be a reduction in consumption power.

Is There A Bubble?

A bubble implies that there is a lot of absorption and therefore a lot of development happening, and that prices are rising in tandem up to a point where nobody is buying anymore. That is not the case in India. Supply on the market has already been constrained because of various factors such as low absorption, higher costs of development and borrowing, and so on.

I do not see a bubble happening in Indian residential Real Estate. In retail and commercial Real Estate, there are price corrections at the level of projects, depending on the amount of pain the developer is experiencing.

This is not the same as a city-wide bubble. Leasing of commercial projects will take much longer and demand has contracted by 15%, and it could go down by another 5% by end of this year. However, the market has already responded to the current dynamics with fewer launches. Commercial rates will not go up, and neither will occupancy, so there will be lower rates but this is not representative of a bubble.