Property Investment in India Has a Great Potential

Posted by Shreekant Rao on February 23rd, 2017

The Real Estate sector of India, which is a major job creator and wealth generating Avenue, has also been saddled with drawbacks like inventory pile-up, high prices, regulatory inefficiency and dwindling sales. Rapid land and infrastructure development in smaller cities and towns, backed by bank loans, higher earnings and improved standards of living has given a boost to housing and construction demand. The new central government's aim of constructing 100 smart cities is a move to ease exodus burden on tier-I towns and accommodate the increasing quantum of floating population with adequate facilities.

These regions will be developed as satellite cities of larger towns and by modernizing existing mid-sized parts. However, these areas, in themselves, may not be a more significant contributor to the real estate market because the developer market in tier-II cities is completely small. Booming infrastructure framework and sound development of property in India go hand in hand. Interruptions in approvals and weak infrastructure policies have damaged the developed growth for long. Expect that there is a marked progress on this front, the growth of property in India will be stifled. The new Government's maiden budget focuses on boosting infrastructure through the PPP mode. Schemes for development of airports in tier-I and tier-II cities have also been proposed.

Infrastructural development is helpful only when they bring about land effectiveness, which implies cheaper land at a transposable distance. Temperance in property prices is a must. In the Union Budget 2014-15, the Government of India has taken substantial steps to upgrade affordable housing. It allocated Rs 4,000 crore for low-cost housing schemes. Along with this, the Finance Minister has also hinted that there will soon be a relaxation of FDI norms for the affordable housing sector. With steps like this, the real estate industry can be highly hopeful of diminishing gap between demand and supply for low-cost housing. Also, Government has emphasized the importance of the availability of cheap credit to make housing affordable for economically weaker sections (EWS), lower income groups (LIG) and middle income groups (MIG) segments of the population. Housing loans will be coming under priority sector lending by the Reserve Bank of India and also housing loans to individuals up to Rs 50 lakh for houses of values up to Rs 65 lakh located in the six metropolitan centers viz. Mumbai, New Delhi, Kolkata, Chennai, Bengaluru and Hyderabad and Rs 40 lakh for houses of values up to Rs 50 lakh in other centers for the purchase or construction of dwelling segment per family.

The recent move to introduce property investment Trusts is quite a continuous one as well. Property investment with proper Property Loan Interest Rate has great potential to tap cash flow into the Indian economy and help smaller investors to access income-generating real estate assets, without having to invest a significant amount. Providing tax inducement to REITs for investment in housing, particularly the economical housing sector will grow the chances of its success. One of the important aspects affecting the health of properties in India is the pricing rationale.

When considering this issue, the availability of capital in the system should be evaluated. The increasing number of private equity and relaxed norms for FDI has brought in more funds and liquidity to the capital-starved real estate, but has the money been put to intended use? The excess capital flow from overseas had resulted in extreme complacency and developers feel no requirement to lower prices to push sales. The result is excessive price levels in Mumbai Metropolitan Region (MMR) and NCR.

Nevertheless, at the same time, it would be not fair to place the entire blame on builders. The capital coming in demands an internal rate of return (IRR) of 20-25% and the makers are bound to fulfill it. Thus, they put the pickets in high priced luxury projects to excellent yields. These few projects have the ability to impair the entire economic balance in land, and eventually, this money plays a dirty role in creating incompetence.

Excess capital leads to a corrupt circle which ultimately serves no purpose. Prices are pushed up because developers no longer feel the need to keep reasonable pricing to drive sales. Everything from the property prices to the construction cost becomes magnified, leading to interruption in deliveries and pushing away the end-users. It is a sad situation where the investor is just left in the lurch and the so-called capital fails to generate returns. Another detrimental upshot of this occurrence is the proliferation of speculators and investors.

[Source: http://www.sooperarticles.com/real-estate-articles/property-investment-articles/property-investment-india-has-great-potential-1525758.html?]