Current Scenario of Real Estate in India

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Weak sales, high inventory, trapped investor and weak sentiment kept India’s Real Estate markets on downtrend in 2015. Same continued in 2016, with not much sign of recovery. Return of investor is eagerly awaited for markets to revive and stabilize.

This slowdown has further weakened sentiment, as increasing number of defaulting developers have made even general customer skeptical. They are shy of investing in property especially in new projects. It is a wait and watch game now.

PM’s ‘Housing For All’ by Year 2022 has seen some activity in Affordable Housing segment, with a number of new projects being launched in various cities across India. A 600 units project by Vivek Oberoi, Bollywood Actor in Mumbai was in news recently.

Activities of PE Players & Fund Houses

Several private equity (PE) funds are either planning or have already raised almost $4 billion from overseas investors to invest in Real Estate in 2016. With project cash flows weak and banks not easily extending debt to Realty Sector, developers are depending on PE funds or private funding for their requirements.

A slow and gradual recovery

With majority of developers, having learnt from their mistakes, are focusing on project execution and delivery. Year 2016 has seen the sector moving from an investor-driven to an end-user driven market. Prices will not see much rise and may stabilize at current rates.

REITs: A Hope for Revival

REITs are professionally managed, publicly traded companies that manage their businesses with the goal of maximizing shareholder value. That means positioning their properties to attract tenants and earn rental income, managing their property portfolios and buying and  selling of assets to build value throughout long-term real estate cycles.

This drives total return performance for REIT investors, who benefit from a strong, reliable investment with annual dividend payouts and the potential for long-term capital appreciation. For example, REIT total return performance over the past twenty years has outpaced the performance of the S&P 500 Index and other major indices – as well as the rate of inflation.

REITs offer a hope for revival of Realty market. As can be seen above these are comparatively low risk, have high liquidity and one can invest in Real Estate market with amounts as low as a few thousand rupees.  Even government is very aggressively promoting REITs. Recently it was in news that Blackstone has applied to SEBI for listing of 1^st REIT with an investment outlay of approximately INR 6000 Crore.

Commercial Sector

Commercial office sector, which was a saving grace during the slowdown, is expected to further shine in coming months. Vacancy levels have fallen and large firms, many in the e-commerce space, are taking up new space at a brisk pace. Buyouts of ready to move commercial space is on, and private equity funds are now even looking at investing in under-construction properties. Realty firms with office development portfolios are not only focusing on growing their business, but in some cases are also shifting focus from residential to rent-yielding office projects.

REITs will give further boost to this sector.