Is the Time Right to Invest in Real Estate in India?

Three years back the question, whether to invest in Real Estate in India or not, would not have

cropped up, as it was supposedly the best investment portfolio. However, with the slow down the

Real Estate sector has gone through in the last three years, investing in property in India is no more

seen as a wise decision. With the recovery of the economy which was initiated last year, the mood in

other industrial sectors is upbeat; however, the Real Estate sector is still waiting for its moment of

truth.

Economic Growth in India - A thumbs up.

The latest IMF (International Monetary Fund) report pegs India’s GDP economic growth rate at 7.5%

for 2015 and would outpace China in 2016, taking over as the fastest growing economy in the World.

IMF in January this year had pegged the growth rate at 6.5%, but has revised them based on the

positive initiatives taken by the government and falling oil prices. A higher growth rate is indicative

of more monetary liquidity with the consumer and leads to investments coming to the market. A

comparative of the growth rates across countries as published in Economic Times is shown below.

Real Estate Sector in India – still Huffing and Puffing

The debit figures for the 29 listed real estate companies increased from INR 34,906 crores in 2013 to

INR 35,979 crores in 2014, with a slow moving inventory these figures are likely to go up further. A

piled up inventory in specific pockets where there is no demand and poor returns on real estate

investments are the two main reasons why the sector continues to show a negative trend, even though

the overall economic sentiment is improving. A number of agencies like NHB and RBI capture the

Property Index in major cities in India; all these indexes have been showing a flat growth rate in

almost all the major cities, with some negative and a few positive. A comparative graph of these

indexes across various cities is shown as under. Though the Indian economy is indicated to grow at a

rate of 7.5%, the high real interest rates in the interest sensitive sectors like Real Estate, durables and

automobiles are acting like a de-catalyzer. Lower interest rates are going to be one of the key factors

if we are looking at the recovery of Real Estate in India (need to empower the investor).

Let’s Toss! Whether to Invest in Real Estate in India or not?

Investment in Real estate takes a huge chunk of one’s savings and therefore needs to be done after

serious deliberation. With flat/negative property indexes and the piled up inventories across all

metros, it gives an impression that it may not be the right time to put stakes in purchasing property in

India. Though the inventory might have piled up, a point which is getting missed out in this maze of

figures is that, the square feet cost of real estate has not actually dropped by more than 5% in any of

the metros over the last 2 years and in fact has remained steady in quite a few, which is a very

positive factor and is indicative of the fact that whatever price stabilization/correction was

speculated, has taken place. Though the inventory may take time to liquidate, the prices are not likely

to come down any further. Let’s now shift our focus to the positives which have happened over the

last 10 months and the impact they would have on the real estate sector in India.

Establishment of REITs was announced in the budget of 2014 and quite a few issues have been

ironed out in the budget of 2015, with the economy growing at an impressive rate, one will see

REITs getting the required investments in the near future.

The establishment of REITs will usher in a self-imposed regulatory mechanism into the real

estate sector. Add to it the Regulatory bill which has been already approved by the cabinet last

month (read the details here http://www.blog.propchill.com/realty-regulatory-bill-the-right-

energy-pill-for-the-indian-real-estate-sector-and-investor/), the real estate sector in India will get

the required impetus in terms of a strong legislative setup, it has been yearning for a very long

time. This will boost the investors’ confidence back into the sector.

Raising of the FDI limit and the Land Ordinance (hope it becomes a bill in the next

parliamentary session) are two elements which are going to boost foreign investment in the real

estate sector in the next few years.

Push to the infrastructure, specifically in the road construction, railways and the Smart Cities

Project are going to be the driving factors for real estate sector in the coming years. Just to

highlight the point, the average road construction has gone up to 11KMs per day from 2KMs in

the last 10 months and is planned to be boosted to 15KMs per day.

A negative inflation, deregulation of cement sector with online bidding/tendering, coal block

auctions, are other factors which will have an indirect positive impact on the real estate sector

in India.

Real estate is a slow moving sector due its longish life cycle and therefore the recovery is going to

take time. With a normal monsoon in 2015, 2016 should see the real estate sector recover back to its

erstwhile glory. Now, finally the answer to the most important question ‘Is it the right time to invest

in Real Estate in India?’ One word answer is ‘yes’. Probably there was no better time than now, to

invest in real estate in India. Of course consider it as a long term investment plan rather than for

immediate/short term benefits.