Is it a mirage? or is it real?, and current scenario from the experts
Metropolitan cities in India are fast becoming a hub of industrial parks, high rises, residential complexes, sprawling malls and huge commercial complexes, which are gradually but steadily transforming their skyline. If you are commuting on the busy and packed streets of Delhi, Mumbai, Bangalore, Hyderabad, Kolkata or any other tier I city, you will come across brightly colored cranes, rubble, construction and hordes of workers scurrying up and down the towering skyscrapers. This surely urges you to contemplate on the explosion of real estate sector in India.
Is it a mirage?
How real is the influx of investments by speculative and long-term profit makers? Are the commitments by oversized private equity firms, overseas investors and domestic financial institutions adding to the hype and frenzy created in the concrete world of real estate?
Astute watchers in the property sector feel that the bubble is not as big as it seems. According to prominent investors, brokerage firms and property developers, there are certain factors which are failing to add the right tempering to the real estate markets in India.
It is quite evident that the funds brought in by the foreign investors are only a small percentage of the promised amounts.
Price resistance from real estate purchasers and the soaring prices of land are cutting deeply into the investor’s margins, making real estate ventures less lucrative than expected.
Bureaucratic lethargy coupled with red tape, opaqueness in regulations and the absence of insurance title prove to be other concerns for real estate investors.
Investor sentiments
According to reports by Cushman and Wakefield, there has been a 15 per cent drop in the valuation of private equity deals in the first nine months of 2012. Their observations are based on the following:
Investors are putting their money in residential deals rather than commercial ones.
PE players are showing an increasing preference towards the metros rather than class II cities in the hope of better liquidity and higher returns.
The investments are being made on the basis of the assumption that real estate prices will not change in the near future.
Investors are looking towards projects which have all approvals and licences in place and are expected to have short cycles. The assurance of quick and stable returns is guiding their purchase and investment decisions.
They are also having a greater say in the prices of projects. This is decreasing the scope for automatic price correction or defining of prices by the developers.
Current scenario
The current situation is raising fears of an overheated economy and real estate bubble. This has inspired the central banks to initiate a lender cutback on the amounts sanctioned for real estate loans. The act has caused an upward escalation in the rates of interest and lowered the attractiveness of home financing for consumers. As a result, the cost of home and office rentals along with their purchase price has ended up touching unprecedented heights.
So where does this scenario leave the investors and property purchasers?
A majority of Indian real estate companies are privately held and do not disclose their financial health to investors and buyers. The inability to read the right signals in the absence of readily available information on products such as retail outlets, industrial property, residential apartments and offices is causing grave concerns in the minds of the investors.
Rumors related to the misfiring of a large deal or reports of distress sales by prominent property developers is further adding to the confusion in investor sentiments.
The prices of property in the Indian markets are being stoked by the following factors:
Numerous speculative deals taking place in the hope of making faster and better gains
The rising cost of construction with respect to raw material, labor and other costs
An unexpected hike in the excise prices
Increase in service tax rates
The escalation in land prices
The present scenario in the Indian real estate markets is raising concerns with regard to future profit margins for foreign investors. Contrary to the figures in the past two years, when increasing valuation in property yielded returns as high as 30-40% on investments, the expected returns in the days to come are not expected to go higher than 15-20%.
Foreign investors are now looking towards other emerging markets such as those of Latin America and Eastern Europe.
Future trends
According to analysts, this is a good time for purchasing real estate intended for long-term investment and end use. The cyclical nature of the markets is expected to push up the residential property rates in the next three years. If the investment horizon is greater than this period then it makes good business sense to invest in property in metros and other fast developing cities.
The decision to purchase property in the emerging areas should be backed by a complete analysis of the demand-supply forecasts and infrastructure plans for the region. As far as capital appreciation and rental yields are concerned, mid-range houses are expected to provide better returns than luxury apartments or premium property purchased at discounted prices.
The trend for Chennai’s property market with specific reference to OMR looks promising.
Residential, commercial and retail property construction is on the upswing. The coming years will see malls, retail outlets, super markets, food courts, restaurants, multiplexes and everything else you need to live a full life. OMR is becoming a self contained city – the NEW city.
MARG JUNCTION that is nearing completion will bear testimony to a world class mall on OMR. The one million plus sq.ft mall will be a cocktail of sorts. The mall encompasses twin tower office, 4 star hotel, shopping, dining, leisure, entertainment all under one roof. On the residential front, MARG Savithanjali near Kelambakkam brings you great choices to suit your budget. Easy access to offices, schools, colleges and leisure points makes life simple for you.
The ‘peripheral business district’ is no longer peripheral. Great connectivity, state of the art offices and houses, good infrastructure OMR has arrived in style. The inauguration of Kalaignar Thirai Oor has further accelerated growth along the OMR stretch up to Payanur.
According to a recent survey conducted by MARG ProperTies the number of IT/ITES jobs is likely to increase to almost 3 lakhs within the next two years. With an increase in population density, demand for good homes, entertainment and general social infrastructure is bound to rise.
The 8th Construction World Annual Awards were announced recently. Treated as the Oscar of Construction Industry, its one prestigious award for construction companies
If you’ve missed the function, it will be telecast this weekend on UTV Bloomberg Channel. Do watch it, either on Saturday, 13th November or Sunday the 14th.
MARG Limited, one of India’s fastest growing EPC and leading Infrastructure development companies, has emerged as the ‘Second Fastest Growing Construction Company’ as per the Construction World Annual 2010 study. MARG established in 1994 and headquartered in Chennai is promoted by Mr. G.R.K. Reddy; a first generation entrepreneur with over two decades of hands on experience in Financial and Infrastructure related businesses.
MARG took the privilege of been recognized at an elaborate event on 19th October at Hotel Taj Lands End in Bandra in the presence of Industry Icons, Financial and banking professionals, bureaucrats and technocrats. Hon’ble Governor of Maharashtra, Mr. K. Sankaranarayanan honored Mr. GRK Reddy, Chairman & Managing Director, MARG Group and conferred with award and recognition at the 8th Construction World Annual Awards 2010. RC Sinha, MD, MADC, was the Guest of Honour.
The awards are given across broad categories of Construction companies / contractors, Construction equipment manufacturers, Building material manufacturers and most admired companies. A total of 35 awards was given
Mr. GRK Reddy speech said, “This recognition reaffirms our faith in the pioneering spirit that inspires us to create world-class infrastructure projects. I am also proud of our employees and associates who made it possible for us to win this award. Be it ports, airports, SEZs, IT Parks, malls or residential projects, we are striving to build better places to work and live. At MARG, we strongly believe that growth needs to be Inclusive and all our projects are aimed towards making this dream a reality. We want to be the catalyst of change in bringing about real estate and infrastructure democracy for the nation.”
Construction World is India’s No.1 magazine for Construction Sector since last thirteen years. In the midst of its publication services ‘Construction World’ is the only publication that has been conducting the process of ranking and awarding industry participants for the past seven years, thereby fulfilling its mission to raise the standards of excellence in the industry. Construction World Annual Awards is the flagship event under the CW umbrella. It is the most prestigious set of awards which recognizes and facilitates the achievers in the Construction and Allied Industry. Held every year since its inception in 2003 it is the first set of awards for this industry and most widely accepted by the construction fraternity. The awards muster 400 top professionals and business owners from the industry to be audience to the felicitation of the industry leaders. MARG’s selection through a mathematical model drawn up by Construction World is a prestigious accomplishment. The winners that emerge from this mathematical model are then vetted by a panel of industry experts.
