Policy changes, polls stall realty; Mumbai hit hard

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Investment in land down 61%, office space sees 77% decline

Investments in the real estate sector have been on downslide, thanks to political uncertainties, elections, and likely changes in the regulatory framework. But the drop remains far from even. While Mumbai continues to come under the hammer, the 2014 scenario in the National Capital Region (NCR) of Delhi and Bengaluru are not as bleak.

While investment in land in 2013 suffered 61 per cent decline, in office space it dropped by 77 per cent and went into a loop in the hotel sector by 87 per cent. The overall investment in the sector slipped by 65 per cent in 2013 over the previous year.

"There is a poignant pause that the investors have adopted as far as the Indian real estate market scenario is concerned, largely on account of the fact that India is currently at the political cusp with general elections round the corner. Added to this, are the suggested regulatory framework changes, which are yet to be implemented. Their entire impact is still to be assessed on ground. All of this is keeping investors from making futuristic investments," said Sanjay Dutt, executive managing director, South Asia, Cushman & Wakefield.

He, however, hastened to clarify that this decline in investment numbers were not indicative of the sentiments investors have of India, as it continues to show future promise as a key market in the Apac region. This is best illustrated in the rise of private equity of approximately 13 per cent year-on-year in 2013. "We expect the economy in general and investment markets in specific to start seeing remarkable improvements by 2015," Dutt said.

Nonetheless, it is not all bad news. Cushman & Wakefield, world's largest privately held real estate consultancy, in its latest report 'Investment Market Beat' 2013 said that India has received an estimated investment of $1.2 billion in the real estate sector making it the tenth most invested location in the APAC region of which

investment in land was the highest at $838 million. The APAC region

received a record $487 billion of investment in the real estate

sector. Of the countries surveyed for investments, China recorded the

highest volume of investments of $358 billion, followed by Japan,

which recorded investments worth $ 44.6 billion in 2013.

Keeping up with the trend, Mumbai will continue to remain under stress

while NCR and Bengaluru are expected to perform better in 2014, at

least in terms of development of prime office space.

According to a Knight Frank report on prime office development land,

Mumbai emerged as the worst performer. Excess supply of prime office

space and low transaction volumes led to a decline in the prime office

development land index by 13.1 per cent in Mumbai during the past two


In 2014, an overbearing office supply pipeline coupled with a marginal

improvement in demand will keep rentals in check. As a result, demand

for prime office land will remain sluggish for Mumbai in 2014, said

the report.

However, it adds, that the change in development norms coupled with

increase in prime residential prices resulted in an appreciation of

35.2 per cent in prime residential development land in the past two

years. "Notwithstanding the muted growth in end product price during

the last year, land suitable for prime residential development

witnessed unabated interest," said the report.

According to Samantak Das, chief economist and director research,

Knight Frank India, "Results of our inaugural prime Asia development

land index indicates an increase in land prices in all three Indian

cities. Mumbai witnessed maximum appreciation in prime residential

development land compared to NCR and Bengaluru, but emerged as the

worst performer in the prime office development land."

Fali Poncha, director, land, Mumbai, said, "Population growth and

economic prosperity has resulted in a dramatic increase in demand for

housing in Mumbai, particularly in the last 10 to 15 years. Limited

availability of land, poor quality infrastructure and regulatory

constraints, have severely restricted creation of new housing stock,

resulting in an ever- widening demand supply gap and consequent

increase in built property prices. This, in turn, has led to a very

significant rise in land prices, a trend likely to continue in the

foreseeable future."

However NCR and Bengaluru are not doing so badly.

In the last two years, prime residential development land index for

NCR has witnessed an appreciation of 24.9 per cent owing to the

increase in prime property prices and steady demand. Although the

prime residential index shows a 13.8 per cent increase y-o-y, emerging

markets have witnessed a higher appreciation in land values. Prime

office development land index witnessed a growth of 16.3 per cent

during Q4 2011 to Q4 2013.

Emerging markets of Gurgaon illustrate a much higher rise in prime

office land values compared to the established markets of Connaught

Place and Saket. Dearth of land in prime locations and consistent

demand is expected to push up rentals and capital values even further.

Bengaluru's emergence as a preferred IT/ITeS destination has resulted

in the city growing radically outwards with major arterial roads. In

the last two years, prime residential development index for Bengaluru

has witnessed an appreciation of 26.1 per cent owing to the increase

in prime property price and steady job growth.

During the same period, prime office development index witnessed a

growth of 12.9 per cent coupled with a healthy leasing market,

catering to the office space needs of both IT/ITeS and non-ITeS

sectors. The prime development market in 2014 is expected to remain

stable in Bengaluru with developers continuing to launch projects at

fair price appreciation.


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