NRI Investors Must Avoid Real Estate With Modi Win

Given the baggage of political uncertainty that impacted buyer confidence and Investor sentiments during the past few quarters, experts on the panel unanimously welcomed the strong political mandate at the Centre. However, with key areas such as land and labour being state government subjects, experts opined that a stronger government at the Centre, by itself, will have a limited role to play in ironing out key ground-level issues that the real estate sector currently grapples with, especially around ease of transactions and approval timelines.

Real Estate developers are likely to identify geographies witnessing healthy job creation and employment generation as key growth corridors of relevance. Demand for housing, in geographies driven by healthy job creation, is largely end-user driven, reasonably stable and relatively more immune to demand-side shocks.

As a result, residential demand in cities such as Bangalore, Chennai, Hyderabad and Pune remained reasonably stable through FY14 with a healthy run rate of launches coupled with steady absorption. On the contrary, residential demand in NCR and Mumbai continued to be investor-driven, resulting in significantly higher volatility in underlying demand. In fact, most developers, according to the experts on the panel, make the mistake of deploying excessive amounts of short-term capital in land, which deters on-time project completion and affordable pricing of completed units.

Problems for Realty Developers
The panel of experts unanimously opined that although capital is available to highest quality developers, the cost of capital gets prohibitively expensive when developers are unable to demonstrate their ability to convert inventory (land) into cash flows in a time-bound manner.

Real Estate Regulation Bill penalises developers for undue delay in project completion, developers on the panel highlighted the exogenous factors in the local government agency domain that often delay the approval process and hence, the project completion lifecycle. The experts on the panel believed that these legislative and regulatory moves will be rendered toothless unless proportionate accountability is fixed on the state, in terms of time-bound approvals and clearances for projects.

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