The real estate market has been depressed for a few years now. But this financial year things are looking better, albeit with a note of caution. Sarjan Shah, managing director, Group Satellite, a Mumbai based real estate developer, believes 2018-19 will continue to be a cautious year, where “developers will look to consolidate and exhaust existing inventory before launching new projects while buyers and investors will continue to wait to see if there is further price correction or consolidation in the market.” In an e-mail interaction, Mr Shah discusses developments in realty market and outlook for the new fiscal. Edited excerpts:
Real estate has been depressed for several years now. Do you see things changing?
Real estate has gone through some unrelated challenges since 2008 – political instability, constantly changing regulations, unequal application of rules, and the burgeoning RTI industry of blackmailers. These practices combined with the entry of unscrupulous operators in the industry led to a loss of confidence in the public mindset. None of these factors had anything to do with actual demand-supply dynamics which have remained healthy throughout.
Going forward, we will see velocity of sales and transactions picking up as the fundamental need for real assets for end users as well as sophisticated investors is perpetual. What was needed was regulatory stability, which we now have through RERA and the new DCR for Mumbai (expected shortly), and cleaning up/consolidation in the industry. Well-established players have taken advantage of the distress and picked up a variety of assets / deals through new structures like JDAs and DMCs.
We are already seeing a lot more institutional capital flowing into the sector, with large global funds looking at deploying long-term, patient capital to the sector. They are usually the first movers, after which consumer funds usually follow.
While we don’t expect too much of a dramatic price increase in the short to medium term, Mumbai-specific real estate continues to be an excellent long-term alternative asset class.
Instead of buying homes people seem to have put money in mutual funds (SIP instead of EMI) as they don’t have trust in builders, frequent delays etc. How can buyer confidence return?
Firstly, no SIP gives you a roof over your head and the quality of life that one desires so it is not a correct comparison to make, unless we are talking about second and third homes for investment purposes alone. So as far as actual end-user sales go, there is no alternative to the need to own your home. As far as investments go, residential real estate in India yields below-market rental income, so the only objective is long-term capital appreciation. On that count, real assets will continue to be an excellent option to hedge against volatility in equity markets. Keep in mind also that Indian equity markets are not as deep or mature as western markets and as such volatility due to myriad factors continues to plague the average investor, and real estate in prime cities like Mumbai continues to be the safest store of wealth.
As to lack of confidence in developers, as I have said above, RERA is the turning point as it has become a truly effective, efficient and just dispute redressal mechanism which holds developers responsible for their commitments, and provides immediate relief to distressed buyers. This combined with the increased transparency in the approvals process has already led to significant increase in buyer confidence which will continue to improve as RERA matures.
How will 2018-19 be for real estate? Are there signs of market reviving, buyers returning?
2018-19 will continue to be a cautious year, where developers will look to consolidate and exhaust existing inventory before launching new projects while buyers and investors will continue to wait to see if there is further price correction or consolidation in the market.
There’s lot of unsold inventory across several markets in the country. By when do you think the backlog will clear?
Absorption rates in Mumbai will increase dramatically in the last two quarters of FY 2018-19 for a variety of reasons, including matured operations of RERA, GST teething issues resolved, increased project delivery on existing projects nearing completion and the return of institutional capital to the sector.