Far From Realty: Why Are Investors Taking A Break?

Figures speak for themselves: end users have made a thumping comeback to the country's real estate market, while investors are exercising caution. They also indicate why that is so.

According to PropTiger DataLabs report for the January-March quarter (Q4) of 2015-16 (FY16), end users accounted for 97 per cent of the total housing demand across nine major cities of India. In the first quarter of the year, end-user demand had stood at 77 per cent. This is an indication that things have changed substantially over the quarters and the consistent increase in end-user demand points to the many underlying issues that might define India's real estate sector in the near future.

Further, at around 36,000 units, the number of new unit launches in the March quarter was the lowest in 12 quarters. On the other hand, according to the PropTiger DataLabs report for March, new launches across the four regions —North, East, South and West India — saw a 70-80 per cent decline over the previous year. In fact, 'Millennium City' Gurgaon did not see any new launches during the month, while activity remained muted in India's financial capital Mumbai for a fourth month. The two cities are considered investors' top favourites.

That's not all. The March-quarter report also shows that property prices remained flat, with only Hyderabad reporting a year-on-year appreciation (of six per cent). The March figures did not show any bright spots, either.

Why are investors keeping away from real estate?

• Owing to a cash crunch and various regulatory hurdles, many real estate projects are stuck at various stages of construction. Developers are unable to deliver projects, while home buyers are having to wait. This is a situation that may qualify as a vicious circle: When developers do not deliver projects in time, the chances of they attracting fresh funds is limited. When they have no money to pump in, project completions remain a distant dream. Besides, delivery failures often lead to an image erosion for builders; and that will impact them more than ever when the Real Estate Bill is fully enacted. (The Centre recently notified 69 of the 92 Sections of the real estate Bill.) While such a situation does not benefit anyone, this hits investors the hardest. Under-construction projects facing construction crises means that they can neither exit nor stay.

• Unlike end-use home buyers, investors are in the market primarily to gain profits out of the funds they put in. In situations where they are not getting the desired returns, exercising caution or making an exit is one aspect of their business acumen. However, their plans do not actually define the sector's growth; it is only an indication that investors are not able to earn as much from the industry as they would like to. This, however, is an opportunity for those who are there to buy their dream homes.

• When investors are not active in the game, the key end users — home buyers in this case — have a lot of scope to make the most of the opportunity. So, the time is perfect for a home buyer to take the plunge, for a variety of reasons. Prices in real estate are stagnant, developers are sitting on a huge inventory pile and are keen to liquidate it, the Reserve Bank of India has reduced the repo rate in several instalments over the past year and commercial banks are now passing on the benefits to customers, and discount offers are aplenty. A combination of all these factors presents the perfect time for you to buy your dream home.