The market is a lot more rational in Tier II and III cities

Realty Zone / Feb 15 2013

"The market is a lot more rational in Tier II and III cities. Land and construction costs in most of these are affordable, which creates a far more amenable and realistic environment for group housing in such cities."
Om Ahuja, CEO-Residential Services, Jones Lang LaSalle India shares his views with Sandeep Sharma about emerging trends, housing stock situation, affordable housing, realty as an asset class, growth expected, recommendations for boosting real estate sector growth. Edited Excerpts…

Could you tell us about the emerging trends in Indian real estate sector?
Affordability was the theme from 2010 to 2012. However, what affordability really meant was homes out of the city limits. In 2013 and 2014, we may see affordability in the real sense of the word. With many new launches lined up in Gurgaon, Dwarka Expressway, Chennai, Bangalore and the Mumbai Metropolitan Region, we are likely to see a few innovative concepts in affordable housing coming into existence within the city limits.

What’s your take on the housing stock situation in Tier-1 cities? How long can the builders hold and not reduce the price?
The ground situation currently is quite different than reported in various news articles. Even today, those who venture out to buy a ready apartment in in an area such as Worli (or other premium locations of Mumbai) will not find anything that meets their needs.

The reason is that there is currently no oversupply in most of the cities. That said, the projects that are under construction and will get delivered from 2015 onwards may create an environment of oversupply. Population expansion and many other parameters will determine the excess supply scenario in 2015-2017.

How would you define affordable housing keeping in mind the Tier-I, II and II cities customer?
The market is a lot more rational in Tier II and III cities. Land and construction costs in most of these are affordable, which creates a far more amenable and realistic environment for group housing in such cities.

The stock market is on the ascend and investors are looking forward to divert their investment in equities. In the current scenario, do you think real estate as an asset class has become less attractive?
It has clearly emerged in the last decade that investors into various asset classes differ in most respects. Investor in equities / commodities are not overtly aligned to real estate. However, investors who were focused on debt/ RBI bonds have been increasingly looking at real estate over the past few years. Considering that equities are looking up, savings/profit booking from equities will certainly get parked in real estate. We may see further cash flows entering into the sector once equities start performing.

What kind of growth is expected in the residential real estate segment in the next one year?
One year is a very short duration. It would be unrealistic to put return expectation on an asset class that has long duration investment dynamics.

On the announcement of new projects in the last six months, can you share some statistics?
The new projects announced over the past six months have been well received by the market in terms of response. However, statistics in an industry wherein data is not validated would be not a right way to benchmark.

What kind of Government initiatives can go a long way in boosting the real estate sector growth?
The biggest scarcity in the current environment is land, where affordability has become a massive challenge. Infrastructure and land will need to be two major focus area in terms of Government-led policy making.