Where your investment is on
a safe ground
| With the demand for properties hitting an all-time high, the real
estate sector remains buoyant. Experts say that it continues to be a
very good investment avenue, writes Shyama Rajagopal. |
– Photo: H. Vibhu
A good option: Investing in the real estate market is a safe bet,
say experts.
Real estate has become the most important investing avenue in
the country because of the boom in demand for properties. Experts even see the
bullion prices coming down in anticipation of further growth in real estate
market.
Though demand is usually dictated by considerations of affordability and the
economic situation, it is seen that even in advanced countries, where population
growth is low, real estate continues to be a favourite investment, said A.
Harikesh, vice-president, Strategy and Product Development, DLF Home Developers
Limited.
Real estate developers entering the capital market is one of the latest
trends that has set in, said Mr. Harikesh. This step is bound to bring in more
transparency and increased general participation in the business, which was
earlier dealt only by a miniscule.
Transparency
Reforms in the sector will add to the transparency in the sector. Innovative
banking products are a boost for the growth of this sector, he added. The real
estate growth over the last three years was rather heady, he said. In the coming
years, it may not have the kind of exponential growth, but it will be steady
enough to provide one of the best investment options, he added. The market will
not be in a lull as some may like to say, he said. He said that real estate
business was mainly localised until recently, where local players ruled.
However, the face of developers has changed into a mix of local, national and
international players.
The growth in real estate are of three kinds, said C.V. Ignatius, HDFC
Limited Kerala general manager. One is the demand for residence, the second is
the demand for office space because of the immense support the IT and ITeS
sectors are getting from the Government and thirdly the boom of big retail
market across the country.
According to Mr. Harikesh, the real estate demand in residential sector is
about 75 to 80 per cent. Of course, the kind of home is led by individual
desires and aspirations, he added. Amit Bhagat, joint general manager and
business head, property services, ICICI Bank, said that there was considerable
growth in the real estate portfolio of the bank with an increase of 8 percentage
points from 16 to 24 per cent in the last couple of years. There is much demand
for commercial and retail real estate investments, he added.
Banks’ role
Besides, there is also a movement of people from their own area of operations
to other high opportunity places with banks showing interest in the people’s
investment desires. People far away from Kochi can invest in real estate here
through the bank, he said. Or someone in Kochi can buy a property in Pune, which
is one of the fastest growing cities in the country, Mr. Bhagat said.
The country’s high Gross Domestic Product growth of more than 9 per cent is
responsible for fuelling the growth of real estate too, opined Mr. Harikesh.
There has been a high level of employment generation and there is a segment
which has a high percentage of disposal income, he added.
While everybody agrees that housing needs in the country fall short by at
least 20 million to 24 million dwellings, high cost of construction, price rise
in real estate and lack of quality land in fast growing cities continue to hold
back the need of shelter for many.
Experts opine that the rise of the middle class and the high income group
will be the major thrust behind the real estate growth. Hence, when prices
continue to rise, the purchasing power of the people will also rise because of
the high income of the people in these groups.
Urbanisation
Urbanisation is yet another reason that has accounted for the growth of real
estate and property. Mr. Harikesh provides interesting statistics on
urbanisation. From 1991 to 2001, the urbanisation rate was at 3 per cent. From
2002 to 2005, the rate of urbanisation was 3.8 per cent and from 2005 onwards it
was 5 per cent and more as against a population growth of 1.3 per cent.
He said that urban population, which would form 41 per cent by 2015 against
27 per cent in 2000, would call for a shift of approximately Rs. 24 crores of
people from 2005 to 2015. Urbanisation and income growth will be the wheels on
which real estate market in urban areas will be driven, he said.
There is a definite shift in the age of first time borrowers from banks, said
Mr. Ignatius. Earlier, the average age was around 40 years, but now it is 30
years. The advantage of the country is that 50 per cent of the population is
young and has potential to contribute towards the growth of the real sector.
Further, there is also an increased penetration of finance, making housing more
accessible, he said. HDFC showed an increase of 20 to 25 per cent growth in
housing finance last year, he added.
Some of the real estate trends in store will be an increased consciousness of
brand, said Mr. Harikesh. Consumer will be the king here and hygiene factors
associated with any purchase will be taken for granted. Continuous upgrading of
property will be part of the lifestyle.
Second investment
Earlier, people who had built a house would never think of owning a second
house. But now another investment in a house is not a matter of second thought.
The lifestyle of people is changing.
People have started changing cars and many other things which were earlier
never thought about, he said.
What drives the financial institutions to go in for promoting this sector is
the high level of pre-payment against the loans, Mr. Ignatius said. The
debt-averse nature of the middle-class helps in disbursing loans at a faster
rate, he said. Mortgage as a percentage of GDP is 5 per cent in the country
against 11 per cent in China. The Government’s role in promoting real estate
as a major sector is rather immense. The Land Records Department is one
department that needs to be modernised for smooth and transparent functioning
land deals. The sector also hopes for reforms in the Land Ceiling Act with a
stable regulatory environment. Speedy approvals of projects are an incentive to
any industry.
Lastly, but certainly not the least, urban planning and infrastructure
building are the focus of all real estate development. It is primarily a
Government responsibility, which can be supported by private players.
In a place such as Kerala, where land is scarce, vertical growth is the
solution. But for that the cities and the towns need to have a good road
infrastructure, said Mr. Harikesh.
A low FAR is making the land prices and the cost of flats to shoot up.
Availability of water is something that needs to be ensured by one and all, he
added. Nobody in the country seems to be planning for water.
Courtesy:
Property Plus, The Hindu
