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The RBI’s approach to control inflation, which led to the tightening of monetary had a major impact on the realty industry in India over the majority period of the year.

A summary of realty industry – 2013

As the realty industry has welcomed the New Year with new hopes, let us look back and take a glimpse of the events that took place in the real estate sector and influenced the forecasts of the Indian Economy.  After witnessing an exceptional growth over the last two decades in the Real Estate and Infrastructure sector; however, the growth went loose and the economy dropped in the past few years impacting all the sectors including the realty segment.

The measures taken by the RBI to control inflation that resulted in monetary tightening had a major impact on the realty industry in India that led to high interest rates, increase in unsold units, and lower profit that caused the slowdown in construction activity, new launches, and delay in project completion by various months.  Even most-experienced developers in residential projects are worried due to the subdued sales that has piled up inventories across many cities of the country.

Top six cities real estate data

An overview of realty industry performance in the top six cities of India that include Mumbai, NCR, Bengaluru, Chennai, Hyderabad, and Pune.

Mumbai:  The restricted supply of land resulted of high prices for residential properties, where the weighted average price in Mumbai City is 15,000 per sq. ft., whereas in the entire Mumbai Metropolitan Region (MMR) that includes areas like Thane, Vasai-Virar Navi Mumbai, and Mira-Bhayandar the weighted average price was 5,900 per sq. ft.

Chennai:  Chennai City have the weighted average price of 4,700 per sq. ft.

Bangalore:  Bangalore City have a relatively lower weighted average price of 3,800 per sq. ft.

Pune:  Pune have a weighted average prices for residential properties at 4,500 per sq. ft.

Cities like Pune, Chennai, and Bangalore coped to maintain the prices at affordable level due to the developing IT and ITES sector and the emergence of micro markets.  Bangalore remained to be the city with most affordable residential properties that accounted to 77% of under-construction units below the ticket size of Rs.50 lakh and Chennai followed Bangalore City with 75%.

The developers in these cities had understand the requirement of the buyers and focused on delivering apartment of right size ensuring that the affordability level of the mid-segment is not shattered.

On contrary, Hyderabad City had only 51% of under-construction units below the ticket size of Rs.50 lakh and has the lower weighted average price.  Since, most of the new projects are distorted towards larger sized apartments shattering the ticket size of 50 lakh irrespective of lower price per sq. ft.

Mumbai market with 29 per cent of total under-construction units retains its position as the most unaffordable market exceeding the 1 crore mark, whereas NCR and Bangalore markets were at 11% and 5% respectively.

Present Situation and Future Predictions

The Indian economy grew at a slower pace over the last decade and the GDP of the country was at 5% in the fiscal year 2013.  Moreover, policy inconsistency and the indifference of international and domestic business community sentiments have distressed the real estate sector.  Many industry veterans hope that policy makes will very soon realize that only easing the FDI will not attract foreign investments and say that favorable business setting that provides transparency and policy regularity is essential.

In a wake to make the market more favorable for investor, SEBI drafted REITs in the country, but this could not take form due to various reasons, such as global economic slowdown.

Despite of all these factors the Indian real estate remains to attract investors immensely.  On a positive note, though the Tier I cities are in saturation stage, Tier II cities have started developing with the investments in IT and industrial sectors.  Hence, Indian realty industry is self-assured for development enhancing the country’s economy with it.  The thought that Indian real estate is expensive is on the cost of undeveloped land that is an unusual one, but the completed residential or office space is still available at reasonable price in most of the cities.

To get back on the track of growth by the second half of 2014, the policy makers should make progressive monetary policies that will create conducive market and lower fiscal deficit.