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Key trends anticipated in Indian real estate for 2013

Year 2012 closed leaving positive expectations for Indian real estate in 2013. Below inflation rate than projected and growth of Index of Industrial Production (IIP) gave new hopes for the current year.


Last year was not as profitable for real estate market as one would expect as most major sectors in real estate got affected by the slow growth in 2012. Commercial space absorption was quite low due to the quality supply challenges. Though demand of residential properties showed positive trends, developers still had to struggle with unsold inventories.  The proposed bills and policies for improvement of real estate industry have also raised hopes about the betterment of the real estate market in 2013.

Here is the real estate forecast for the year 2013:


Policies: Recent policy initiatives by government bodies have shown expectations of positive changes in Indian real estate in 2013. Some of the policies like Real Estate Regulation Bill 2012, UP Apartment Act 2010, Real Estate Investment Trust (REIT) 2010 are anticipated to be implemented soon. The proposed initiatives are expected to bring transparency in real estate transactions. Thus, these may make real estate a reliable investment option. Plans have been made to build Land Authority of India for better utilization of unused land.

It is noteworthy that in the fiscal year, nearly 7.5% of total Foreign Direct Investment (FDI), which amounted to nearly 3 billions dollar, was witnessed in the infrastructure sector. Moreover, as the Indian government plans to relax a few FDI related policies pertaining to the retail sectors, investment in back end infrastructure development like logistics is bound to increase. Furthermore, under the automatic route in built-up infrastructure, as much as 100% FDI is also permitted. This is likely to enhance the development of the city and regional level infrastructure this year.
Residential Real Estate: Once REITs is implemented in India individual investors are likely to benefit from their investment in a secure real estate market. There might be an increase in  the umber of investors. To add to this, while the trend in the past two years indicates fast sale of the property lying in range of Rs. 2,000 to Rs. 3,000 per square foot, this year, due to increase inflation and construction cost, one can anticipate the increase in sale of property within the range of Rs 3,000 to Rs 5000 per square foot.
Retail Real Estate: Due to relaxation in Foreign Direct Investment (FDI) policies, one can expect an increase in the demand for retail spaces this year. Though expectations for high demands are made, meeting with the increased demand is still a challenge as most developers focus on residential projects.
As high demand and less supply is always better for developers as the cost of these spaces will be relatively higher unless focus shifts to commercial development.  Cautious retailers can find a way around such situations by opting for built-to-suit.

Office Real Estate: There are not much changes expected in office space absorption this year. It is anticipated that demand of office space in prime building located at prime locations might increase. This might raise premium earning opportunities. Due to completion of various commercial projects in the second half of the year, offer on vacant spaces might increase. This in turn might raise rental rates in different cities. Occupiers who want to take position in India and plan to avail the benefits are expected to decide on occupancy of special economic zone (SEZ) before March 2014.

Industrial Real Estate: Expectations about the growth in sale-cum-leaseback of industrial properties by existing companies are high. Warehousing space demand might increase this year too  due to FDI in multiple brand and developing e-retailing veers.
Views on Investment: Indian economy has deep capital markets, which is expected to grow this year. Removal of most of the restrictions on FDI in retail multiple branding and simplified procedures will tempt more foreign investors. They might enter Indian retail sector either as sole proprietors or through joint ventures. This is likely to enhance capital funding in Indian market economy.

Education and Health Care: This year, aggressive growth plans have been made for improvement of educational sector in India. To enhance the standard of education in India, skill based educational institutions has been planned in non-metro cities. As far as heath care is concerned, several chains of hospitals and day care centres have been planned this year. It is anticipated that development of these segments will pull in private equity investment.
National Capital Region: Most of the absorption in National Capital Region (NCR) will be contributed by Gurgaon and Noida. It is expected that real estate developers might focus on delivering projects on time. In second half of this year, rental rates of commercial space in Delhi are expected to go high due to supply restraints in some areas of Delhi. This may work favourably for commercial real estate development in Gurgaon and Noida. Moreover, establishment of Land Authority of India may increase income from sale of unutilized and under-utilized land lying with government bodies.
Mumbai: Owing to booming real estate market, Mumbai is seen as one of the most preferred destination for real estate investment and the trend is expected to continue in this year too. Residential and office space demand might show positive growth. Different new policies such as free downloading of property transaction forms might pull in further demand. Office space in Mumbai is expected to be tenant-friendly in the first two quarters this year. Furthermore, this year, 10-12% increase in corporate space occupancy is expected in comparison to 2012. Launch and delivery of new projects is anticipated to be low. Rental gap between A Grade and B Grade malls might further extend (owing to constrained supply of quality retail malls).

Bangalore: Demand for Grade A offices might continue to be positive this year too. Supporting factors include low vacancy levels, healthy absorption rate and rental appreciation on the Outer Ring Road. Due to high potential for capital appreciation, Bangalore is expected to reap positive results. Increased sales is expected with the completion of under-construction projects on Sarjapur Road. Proximity to important locations in the city like metro stations, expressway and IT growth corridor might contribute in growth in demand of residential properties by end users.

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