‘Best time to invest in real estate’

Real estate prices were one of the worst-hit by the economic downturn. Though the prices have risen marginally, it will be some time before the market actually picks up.
DNA called in a panel comprising Rajnikant Ajmera, managing director, Ajmera Realty and Infrastructure India Ltd, Ashish Raheja, managing director, K Raheja Universal, Paras Gundecha, managing director, Gundecha Builders, Rasesh Kanakia, managing director, Kanakia Developers, Balaji Rao, managing director, Starwood Venture Capital, Suresh Mittal, managing director, Mittal Developers and Aniruddh Wahal, director, business development, DTZ India to throw some light on the property slump, real estate investors, land acquisition and land hoarding. The discussion was moderated by Ranjona Banerji and Rajshri Mehta.

Aniruddh Wahal: Real estate developers underwent a short-term liquidity crunch during recession around the world. But, the domestic economy continued to grow and buyers are coming back. Recession jolted Indian developers out of traditional debt financing, sales linked to construction, plain vanilla-product offerings and speculative land hoarding. Now, they are focusing on smaller residential projects, introducing smart marketing techniques like freebies, financing through QIPs and other evolved instruments. A new developer mindset has emerged which will help in convincing the foreign institutional investors. However, the new mindset has not impacted the profitability of high value apartment projects in South Mumbai, where developers continue to charge mainly for the land.
Ashish Raheja: The developer fraternity got carried away in 2007 and 2008. Now with project reconfiguration and market support, most branded and quality-conscious developers are in a healthier state. They should now ensure a sustainable development model. During the 1997 boom, the residential prices in Bandra and Borivli were around Rs15,000 and Rs4,000 respectively. Around 12 years later, they are around 25% higher. The prices are still 20% lower than what was in 2007. So, it is a good time to buy.
Land prices hardly reduced despite the meltdown. Landowners prefer to hold land banks. Moreover, land is getting speculative with developers offering unrealistic prices. There is a mismatch between land and property-selling rates.
Rajnikant Ajmera: The sluggishness in Indian economy was more psychological. A strong GDP rate and increase in excise collection are evidences of industrial recovery. The market is favourable for buyers. Buyers, who were earlier postponing their decisions, now find it a perfect time to close deals. With the beginning of the festive season, we are expecting sales to pick up. We are facing challenges from the legislations today. The government is imposing prohibitions, restrictions and legislations which will deter the industry's growth. The sector gives the largest employment opportunities after agriculture, which can not be ignored.
Paras Gundecha: The slowdown in property market lasted for only a year. Residential sales have picked up from March this year. The share market has gone beyond the 16,000 mark. All industries are showing positive signs of growth. Even interest rates have dropped and the future of real estate is bright. Though property rates have come down, land rates are still high. This is not good for the industry as land cost is a major component which decides the rate of a finished product.
Rasesh Kanakia: Expansion and growth plans have reappeared in board meetings. There is ample liquidity in the economy and reduced interest rates have given a boost to it. Last year, house prices dropped by around 30% to 40%, and in the past three months, prices have not only consolidated but started going up by 10% to 15%. The developers had done five mistakes during the boom -- holding on to inventory, mindless expansion, creation of land bank, diversification into unrelated areas and excessive borrowing. They have now realised their folly and are now focusing on their core business.
Balaji Rao: The rebound in the property market has been driven by various fiscal stimuli and monetary-easing measures undertaken by the government. I feel that this could be just a dead cat bounce and if the markets do not catch traction then the possibility of a double dip is real. It is critical that the developers hold prices and keep pushing volumes. They should adopt more transparent procedures such as a carpet area basis, escrow account for the advance sale proceeds, project financial closure details, etc. Having a real estate regulator will be a positive step. It is also necessary that quality standards and warranty measures are introduced.
Suresh Mittal: With the Indian economy recovering and the Sensex nearing 17,000, sales have picked up considerably. Customers have started to realise that prices have bottomed out and are now on the upswing. This is a perfect time for them to purchase a new home. Banks and financial institutions are offering their customers home finance at 8%. With interest rates of the US and England being below 1%, NRIs have again started investing in India. There has been a shift of focus to affordable housing. The real estate sector is extremely regulated. The government has to now take major steps to make approval processes simpler and efficient.