Housing sector could turnaround in 2015 with boost of FDI

The year 2015 may well turn out to be that of turnaround for the sagging real estate sector with global investors showing renewed interest. Industry sources as well as bankers believe that the spike in foreign direct investment (FDI) in the real estate after the government relaxed regulations in October this year could change the overall scenario and help companies with huge debt.

The easing of interest rates expected next year is also likely to spur demand and help reduce the soaring inventories, both in residential as well as commercial segments. What's more, new rules for Real Estate Investment Trusts (REITs) are also expected to improve liquidity for developers by offloading their income yielding assets.

Deepak Parekh, chairman, HDFC Ltd, told dna, "The glut in the commercial property segment will continue but the residential property market may see an encouraging growth with the flat of Rs 45 to Rs 1 crore getting sold faster than they did this year with the economy expected to pick up. FDI in the sector will also bring in more capital."

The change in the FDI rules has already begun rewriting the script. For instance, the Singapore-based wealth fund GIC with over $100 billion of assets under management recently announced its plans to buy a controlling stake in Mumbai-based real estate firm Nirlon for around $200 million. Earlier this month, GIC had entered into a joint venture with Indian firm Vatika Group to develop two residential projects in Delhi's suburbs.

"GIC is confident of India's growth potential over the long term,"Loh Wai Keon, co-head Asia at GIC Real Estate, had said in a statement.

Under the new rules, the minimum built-up area for projects in which foreign investment is allowed will be reduced to 20,000 square metres from the earlier 50,000. For serviced plots, there is no minimum land requirement now compared to 10 hectares earlier, while the minimum capital investment by foreign companies has been cut from $5 million to $10 million. Under the earlier rules, the government allowed 100% FDI in real estate development but with strict riders, including a lock-in period of three years during which the investment cannot be repatriated.

Inventory build-up in the sector has been a major concern. According to Liases Foras Data, home sales in the top six cities saw a 25% fall in September 2014 quarter compared to the preceding quarter recording the lowest sales since 2009. The inventory level which has been a major concern also rose to 8,15,000 apartments from 7,65,000 apartments in the first quarter ended June 30 2014. Chennai and Bengaluru witnessed the maximum hit on home sales.

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MCHI-THANE has always been very clear that fine housing complexes and shopping malls cannot stand in isolation. A great City is the sum total of great buildings, great infrastructure and great people. MCHI has been committed to growth of the real estate sector and is credited with the harmonious growth and rise in quality and standards of construction in Thane City in the past decade.

Its aim as an Association of Developers has been to seek rational rules and regulations which are uniformly applied across the board as this will to a great extent result in speedy construction, cost reduction, fair pricing and a push for better quality standards at par with the developed world, with a high level of transparency.