Indian Real Estate – Looking Back… And Forward:  Anuj Puri, Chairman & Country Head, JLL India


anuj puriTracing The Boom…

The structural adjustment programme of the early 1990s initiated the liberalization of the Indian economy. The roots of the high appreciation rates on India’s property market witnessed during the boom period lie in the reduction of interest rates that were instituted from year 2001 by Government’s continued policy of liberalization of economy initiated in 1991. In early 2004, home loan rates sank to a record low of under 7.5%, and this paved the way for the spiking that typified the country’s property rates in many Indian cities.

The very amenable borrowing rates encouraged individuals to avail of home loans to buy residences, where actual property purchase had only been an option for the considerably rich before that. This also brought down the average age of a home purchaser from late 50s to mid-20s, a big change in the way India was buying houses before.

This resulted in a huge demand for real estate all over the country post 2003. After March 2005, Indian real estate rates displayed a seemingly unstoppable upward curve. This was also related to the opening up of FDI in real estate. The market then proceeded to expand at an unbelievable rate, both size-wise and price-wise – in three years, prices were doubled, and so was the construction activity. Adding to this was purchases of large land parcels by developers all over the country. Land banks of this size were never created before. Developers were going places and exploring new territories, and a sense of national players was building up.

This continued right until the slowdown that manifested itself in 2008. The Lehman debacle and the subsequent foundering of global economies were indeed hugely operative factors in this, but the fact remains that India’s real estate sector had also reached a stage where maturity was of the essence. In any case, the slowdown served the purpose of bringing many a location and its overenthusiastic rates to its knees.

Tracing The Bust…

The slowdown was predominantly brought on by the sharp rise in property rates seen over the preceding 2-4 years, and a large proportion of investor purchases (at times as much as end user purchases) eventually added to the supply of houses. The result was a misleading demand assessment. An adjustment of such irrational growth was therefore natural and expected.

Today, real estate prices have corrected in most overheated locations. Residential, office and retail were all impacted at various levels, but the greatest need for correction was in the residential sector, which had seen the highest price appreciations and as a segment is more sensitive to non-amenable lending norms. The exact degree of impact varied across locations, influenced by local market dynamics and property formats.

In ‘Real’ Terms…

The current market dynamics have served the purpose of bringing about a renaissance in the Indian real estate sector. Realistic retail and commercial spaces which are in tune with actual market demand dynamics are now becoming a reality. In the residential space, developers who had previously focused largely on luxury spaces for the cash-rich IT/ITeS and HNI buyer segments have begun launching housing projects for the common man.

Granted, this dynamic is a fluid one which is primarily influenced by the overall performance of the economy. In other words, developers have in the past reacted to upward movements by diluting their focus on affordable housing and going back to higher-priced formats and offerings. However, the incumbent Government’s determined drive towards ‘Housing for All by 2022’ has made its mark with several new incentives for developers and buyers of budget housing. This will ensure that a good cross-section of Indian builders will retain their focus on affordable housing and mid-income housing for at least a few more years.

Even today, the dominant trend in India is a huge demand-supply mismatch in the housing sector. This would indicate that residential property prices will rise again – and we are indeed witnessing the first signs of this happening already. The corrections that have taken place in overheated cities were required, since developers had priced themselves out of the market. The fact that the slowdown forced them to rationalize their rates has been working to the developers’ advantage, and one would have assumed that the recent market dynamics had delivered a clear and unequivocal message.

That said, the rollercoaster ride that Indian real estate was on will not see the same exhilarating twists and turns for some time to come. The onus from now on will be on affordable housing and mid income housing in the residential sector, efficient buildings – in terms of both energy consumption and space utility, at infrastructure serviced locations in the office sector and well-researched expansion plans in the retail sector. The present market vagaries have force-fed transparency into Indian real estate.

RERA – Ushering In A New Era Of Transparency

The passing of the long-pending Real Estate Regulatory Bill, which was being hotly debated and second-guessed for far too long, is an unequivocal victory for the Indian real estate sector. Its enactment as a law will almost single-handedly revamp the way this sector works across the board, from developers to end-users and investors, to lending institutions and property consultants and brokers – and hopefully government agencies involved in the buying and selling of property, too. It is by far the most decisive step the sector has taken towards transparency and reaching towards the kind of standardized processes, procedures and accountability guidelines that the industry requires to progress.

The real estate industry has welcomed this major reform, which promises to bring in much-needed transparency and accountability to the rather opaque sector. It will create a much-needed consumer right protection umbrella for buyers of real estate, thereby increasing consumer confidence as well as creating lasting developer brands strong on quality and timely delivery of their projects.

Overall, the sector is gaining maturity, and over the next decade we will see increasing transparency via the introduction of sector regulators, professionalism and international best practices in real estate.


The Advent Of Transparency


JLL’S biannual Global Transparency Index, which was released last week, underscores that India’s tier I cities secured the 36th rank globally. India has made improvements in overall transparency scores across all markets and achieved higher ranks for Tier I and II markets. Improved market fundamentals, policy reforms (LARR Act, liberalization of FDI into realty sector), and strengthening of information in public domain were main influencers, along with digitization of land records and opening up of REITs.

India’s low score in transaction process (e.g. high costs of investment transactions and weak professional standards for local agents) will improve during 2016-2018 assessment period of JLL’s next Transparency Index release on account of enactment of the Real Estate (Regulation & Development) Act and the consequent establishing of a real estate regulator. Unethical practices will be phased out, and smaller operators will merge into larger, more sustainable entities. All this will be to the benefit of the consumer – who, at the end of the day, is the most important stakeholder on the Indian real estate market.