India's real estate market has been faltering for quite some time as the country's economy remains under stress. According to data from various sources, property prices have seen a correction recently. High interest rates, spiraling vacancy levels and lower margins arising from inflationary pressures too, led to a slowdown which resulted in reduction of new launches and also delayed project deliveries. But, is the real estate market headed for a crash, an event that many prospective buyers have been waiting for?
Well, that may not be the case if one goes by the number of private equity deals that are happening. According to Business Standard, wealth manager ASK Group announced the closure of the first tranche (US $50 m) of its US $200 m offshore real estate fund. Similarly, Indiareit Fund Advisors, which recently raised a Rs 10 bn domestic fund, is looking to close the first tranche of US $75 m of its offshore fund by April this year. Investors in real estate private-equity funds seem to be confident about returns from their investments in such funds.
So where is the property market headed and what should buyers do in this situation? The current situation spells opportunity for buyers who had found the prices moving beyond their grasp when the markets were rising. So far the correction has been in the range of 10-20%. The question is: Is this enough? Or is there scope for more correction? We believe that since prices were so unsustainable in the first place, logic suggests that one should expect more of such correction to happen.
For the real estate sector to revive, the government should seek to streamline the processes that burden land development today. Many developers, including those in the affordable housing segment, complain about the maze of approvals that need to be sequentially obtained before the shovel can hit the ground. Delays in project completion have a direct impact on house prices. The government can capitalise on the grim situation and force through changes like a one-stop approval window that will help attract capital. Only a structural change can attract serious, long-term capital to this crucial industry.