Anuj Puri, Chairman & Country Head, Jones Lang LaSalle Meghraj
In 2008, the Indian real estate sector took an unprecedented body-blow. The recent measures taken by the RBI will need to couple with lowered property prices and further injections of liquidity to effect any significant changes. Until then, domestic demand is likely to sink even further, and international interest will remain at cautious levels before the situation gets better. There has already been an overall drop of demand to the tune of between 45-50%.
We expect these figures to reflect a more positive scenario in 2009, at least with respect to residential real estate. Unrealistic pricing has been the bane of the Indian realty marketplace. There is still a huge demand for residential and commercial properties in many parts of the country, but improper pricing and a faulty product mix were major stumbling blocks. The fallout of the ongoing financial crunch and a justified watch-and wait stance by homebuyers will set some badly needed market adjustments in motion between January and March, 2009.
Many developers will come down on their asking rates after being saddled with unsold stock beyond their ability to hold on. The only means open to them for bringing in liquidity will be to sell their residential and commercial properties, since all other routes are drying up. In 2009, we expect that many of our developers will shift gears and offer the right properties at affordable prices, especially in residential space, where the need to revive demand is most pronounced. End users are only waiting for this to happen, and once it does, we will see a definite upswing in residential real estate sales again. Price drops will vary from city to city, and from micro-location to micro-location within cities. The magnitude will depend on whether a location was overpriced to begin with, and the specific demand-supply scenario.
We also expect that, in 2009, the circumspection currently evident on both the domestic and international investor fronts will give way to cautious forays. A decisive turnaround phase will come only in another 18 months to two years, but 2009 will see the groundwork for revival being put in place.
In terms of liquidity, we will definitely continue to have a challenge situation on our hands. However, in 2009, we expect more innovative financial structures and liquidity mechanisms to ensure that delivery of the development pipeline is not affected. For end users, there has already been a ray of hope, though not too much hope should be attached to it alone. The repo rate and reverse repo rate have been reduced by 100 basis points, or 1%. For end users this will, of course, reduce the cost of acquisition of property in terms of EMIs EMI. While this is certainly a step forward in the quest for introducing demand into the system, much now depends on the developers. Due to the state of the economy, most companies are not offering salary hikes to their employees for the coming year. Therefore, a reduction in interest rates alone will not suffice to bring about a positive reversal in the negative demand dynamics currently prevalent on the real estate market. Prospective buyers will also wait for property rates to reduce before pressing the ‘commit’ button.
In terms of investment opportunities for 2009, the onus from now on will be on affordable housing in the residential sector, sustainable, high-quality buildings in the office sector and infrastructure projects. Knowing when to invest is critical. The deadlock on the Indian real estate market is not only a challenge of prices but also of a now entrenched watch-and-wait mindset. Prospective investors have been waiting for the best property rates to materialize. This mindset threatens to prevail even after the rates have reached their lowest possible point. Much as in the stock market, it is impossible to predict the point of lowest ebb in the real estate market. By delaying a purchase too long, one can lose out on the best properties and also on the best rates and add-on incentives.
If one times one’s entry point correctly, the first two quarters of 2009 will be the ideal time to invest, if you have the ability to wait. The market is will not see such low rates again, and the demand for properties is high and will be even higher. Investors should choose their location carefully and use the interim period to shortlist and research potential properties.
In 2008, the Indian real estate sector took an unprecedented body-blow. The recent measures taken by the RBI will need to couple with lowered property prices and further injections of liquidity to effect any significant changes. Until then, domestic demand is likely to sink even further, and international interest will remain at cautious levels before the situation gets better. There has already been an overall drop of demand to the tune of between 45-50%.
We expect these figures to reflect a more positive scenario in 2009, at least with respect to residential real estate. Unrealistic pricing has been the bane of the Indian realty marketplace. There is still a huge demand for residential and commercial properties in many parts of the country, but improper pricing and a faulty product mix were major stumbling blocks. The fallout of the ongoing financial crunch and a justified watch-and wait stance by homebuyers will set some badly needed market adjustments in motion between January and March, 2009.
Many developers will come down on their asking rates after being saddled with unsold stock beyond their ability to hold on. The only means open to them for bringing in liquidity will be to sell their residential and commercial properties, since all other routes are drying up. In 2009, we expect that many of our developers will shift gears and offer the right properties at affordable prices, especially in residential space, where the need to revive demand is most pronounced. End users are only waiting for this to happen, and once it does, we will see a definite upswing in residential real estate sales again. Price drops will vary from city to city, and from micro-location to micro-location within cities. The magnitude will depend on whether a location was overpriced to begin with, and the specific demand-supply scenario.
We also expect that, in 2009, the circumspection currently evident on both the domestic and international investor fronts will give way to cautious forays. A decisive turnaround phase will come only in another 18 months to two years, but 2009 will see the groundwork for revival being put in place.
In terms of liquidity, we will definitely continue to have a challenge situation on our hands. However, in 2009, we expect more innovative financial structures and liquidity mechanisms to ensure that delivery of the development pipeline is not affected. For end users, there has already been a ray of hope, though not too much hope should be attached to it alone. The repo rate and reverse repo rate have been reduced by 100 basis points, or 1%. For end users this will, of course, reduce the cost of acquisition of property in terms of EMIs EMI. While this is certainly a step forward in the quest for introducing demand into the system, much now depends on the developers. Due to the state of the economy, most companies are not offering salary hikes to their employees for the coming year. Therefore, a reduction in interest rates alone will not suffice to bring about a positive reversal in the negative demand dynamics currently prevalent on the real estate market. Prospective buyers will also wait for property rates to reduce before pressing the ‘commit’ button.
In terms of investment opportunities for 2009, the onus from now on will be on affordable housing in the residential sector, sustainable, high-quality buildings in the office sector and infrastructure projects. Knowing when to invest is critical. The deadlock on the Indian real estate market is not only a challenge of prices but also of a now entrenched watch-and-wait mindset. Prospective investors have been waiting for the best property rates to materialize. This mindset threatens to prevail even after the rates have reached their lowest possible point. Much as in the stock market, it is impossible to predict the point of lowest ebb in the real estate market. By delaying a purchase too long, one can lose out on the best properties and also on the best rates and add-on incentives.
If one times one’s entry point correctly, the first two quarters of 2009 will be the ideal time to invest, if you have the ability to wait. The market is will not see such low rates again, and the demand for properties is high and will be even higher. Investors should choose their location carefully and use the interim period to shortlist and research potential properties.
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