I was pleasantly surprised to get an invite from the Managing Director of RICS (Royal Institute of Chartered Surveyors) South Asia to attend its Real Estate Investment Conference for 2016, themed "Ringing in the Realty Cash Register". There was no way I was going to miss this. Real Estate may not be formally recognized as an Industry in India, but it is probably the second largest employment and wealth creator in this Country, after agriculture and the stock market respectively. The health of this sector in a nation of over 1.2 billion people is a clear barometer of the country's economy. The relevance of this sector goes up even further with the Prime Minister's ambitious plan to create some 100 new SMART cities to take the load off the overpopulated urban centers of today. 
Off late, media sources do not really have too many positive things to say about this sector, despite a couple of large media houses having become the largest stock owners and financiers in this space. One may decide to ignore the smoke signals that indicate a fair level of stress in the industry, but the ground reality is speaking in the same language as well. Progressively rising stock of unsold inventory, financial stress, capital unavailability, dishonour of commitments, suicides by builders, property related murders, incomplete projects, consumer complaints, arrests of big name developers; a search engine will throw up tons of current stories to corroborate the same. 
Yet, if one was to talk to the common man, the end consumer on the subject, the response would be that this sector is not as troubled as it deserves to be. Despite slow sales, prices haven't collapsed as one would have expected. The Real Estate Regulation Bill is still some distance from being enacted as law. So there is nothing really exciting as of now for the end buyer to cut out cheques. If the first 2 weeks of 2016 are any indicator for the rest of the year, then we have just stepped into a scary reality. Is the real estate community running scared then? Would be good to know. There were quite a few people in attendance. That's a positive sign. As I went around networking, most were from companies that support real estate development; private equity, banking, planners, architects, consultants, project management companies, software vendors, equipment and machinery vendors - much of it for SMART cities, brokers, and curious guys like me along with the press. Where were the builders? The big and mid-size ones were visibly missing (except those there to speak), and the smaller ones were there to look for sales leads and funds. I thought they (the big boys) would be the most interested in figuring out how deep a shit they were in, and how to shovel out of it. Maybe, they were all attending the WEF at Davos either to de-stress or look for sales leads and funds. I should check with Anuj Puri of JLL on how his presentation was received at the event.
If property tycoon billionaire Mr. Niranjan Hiranandani's keynote address represented the general mood of the builder community, then the notion of stress was unfounded. According to him, the good times ("Acche Din" touted to all of India by the PM during his election campaign) were just around the corner, as the world investment community has very few options left in the current global economic climate. His optimism is based on data that suggests commercial estate occupation is on the rise. That is certainly a very good sign, as residential uptake generally follows commercial space. It was his opinion that greed in the builder community made it take more money than required to allow land banking, and start off more projects than could be delivered, creating a credibility crisis for all. At the moment, the real estate sector is suffering from over leverage, and it is a situation affecting both big and small builders. The other big problem facing the industry he said was the deep dive by most in building luxury apartments. The major demand centers for real estate, namely Mumbai and Delhi, are thirsting for mid-priced and affordable housing, and that's not really being addressed by most builders. The obvious blame falling on low margins because of the high returns demanded by capital and high cost of real estate. I like this man. He is such a great optimist and believer in his own talk, even when the chips are down.
I do not disagree with what he said, but I feel the industry is facing the same problem that China is. That is; over inflated value of assets that don't really deserve that price, as a result of too much capital being infused into the system at unsustainable returns expectations. Dubai faced a similar situation some years back and no one really believed it would correct. It did. Indian real estate too should theoretically correct, but there is so much of local capital (some of it with nil returns expectation) that prices will just stagnate for a couple of years waiting for demand and affordability to catch up.
Factually, India has attracted very little foreign capital in this sector. During the peak of 2007/8, Some US$ 8 billion walked in. With the relaxation in Foreign Domestic Investment laws pertaining to this sector, it attracted some US$ 4 billion in 2015, which is about the same as what walked in between 2009/14 cumulatively. When one considers that real estate attracts some US$ 750 billion annually on a global basis, India receives a mere drop in the bucket. Yet, it is the second most populated nation in the world, it has some 80 million end users looking to buy their first home now, and paradoxically, it is counting some 7 million unsold homes when statistics report a current demand for 20 million.
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| Pic. Credit India Today |
Call it bad planning or pricing; too much greed or too little delivery; blame it on corruption or excessive regulations; whatever the reasons may be there is neither dearth of capital or demand. Capital, both Indian and foreign appears to be waiting for the market to crack, voluntarily or forcibly, and so is the end consumer. Until then, the real estate market is clearly down and its hope for a quick turnaround nothing more than a dream.
But then, whoever said dreams never come true...
Until my next blog on this sector, happy reading.
Jan 26 2016 : The Times of India (Mumbai)
Affordable housing finds few takers, only 41k units sold in 1 yr
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