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In Hyderabad, we are partnering Indu Developers for the Bachupally residential project. In Kolkata we have tied up with Godrej Properties Limited. We have taken a 49% stake in their IT park project Godrej Genesis, which is expected to generate sales of over Rs750 crore.
How do you assess the impact of the prevailing industry downturn and global financial turmoil on the long-term growth prospects of the Indian real estate sector?
The growth of the domestic real estate is attributed to various factors such as a growing economy and an increasing need for prime real estate. However, this boom is largely restricted to commercial office space, retail and housing sectors. The recent downturn in the US economy has affected both the Indian economy and the real estate sector.
The bankruptcy of Lehman Brothers and sale of Merrill Lynch to Bank of America has had an adverse effect on domestic realty players who had their liquidity funded by both these firms.
The IT segment, mainly funded by PE firms and exports to the US market, has seen a sharp drop in their net worth. This has forced investors and individuals to adopt a wait and watch approach.
The slowing demand and sluggish market conditions has fuelled a 10-30% drop in property rates across most cities.
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What is your advice to investors looking at investing in the Indian real estate market?
As a result of the financial meltdown, global institutions are selling indiscriminately in India to cover their losses. This has impacted well structured, pre-negotiated deals which are now falling apart. The Indian real estate market is watered down, but, now is the right time to make a bold decision and invest in the market. It is a great time to go hunting.
How does the Indian realty market compare with other emerging markets as a preferred investment destination?
This year the BRIC economies alone have seen a correction of up to 50%. A part of the correction is associated with the slowdown in the growth of the emerging markets. The other reason is the global redemption pressure faced by hedge funds thus forcing them to sell in emerging markets. It is a good time to focus on the emerging markets and identify the best amongst the rest.
Has the current liquidity crunch and credit squeeze that developers face impacted your performance?
The Indian real estate market is high on unlevered investment. As a result the global credit crunch hasn’t really impacted the Indian real estate scenario much in that sense. The developers were hoping to get FDI’s but due to the global financial crisis, FIIs are pulling out of deals in India. The number of deals remain largely unaffected, but the money involved is now limited.
Lastly, what will be the key growth drivers for the domestic real estate sector?
The demographic profile is one of the key growth drivers. The emerging middle class and first time property buyers have created a huge demand for affordable housing options. The steady growth of the Indian economy over the last few years is also an important factor.
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