CHENNAI: The effects of slowdown were noticeable in real estate sector across the country till the first quarter of 2009. However, towards the middle of the year, residential rates in some of the larger cities began showing an upward curve. The cities most affected were Mumbai and Delhi, according to Anuj Puri, Chairman and Country Head, Jones Lang LaSalle Meghraj a global real estate services firm. In Mumbai, many developers began raising rates by as much as 12-15 per cent under the assumption that the renewed demand was assuredly sustainable under all circumstances. This assumption started backfiring towards the end of the third quarter, when demand began slowing down again in the financial capital. Delhi showed a more rational graph, thanks largely to a better volumes profile, with price escalations not going beyond 5-10 per cent even in high-demand regions. Bangalore continued to display a sombre profile, since demand from the IT / ITES employee segment has not yet ramped up sufficiently. Chennai’s residential market continued to showcase its usual conservatism. Mr. Puri says residential demand in 2010 would be the highest and most promising. It would continue to lead the revival phase, led by a lowering of mortgage rates and price rationalisation in newly launched projects. “It also looks the most positive in terms of funding. There is liquidity available for certain typologies and formats, most especially in the affordable housing segment. This segment does not depend overly on international funding”, he says. According to Mr. Puri, there are two cost-to-developer components in question for such projects. One of these is cost of land, but such projects are located in areas where land costs are low to begin with. The second is cost of construction, which is adequately covered by the down-payments taken on such units. Moreover, such housing formats invariably employ de-frilled mass-construction parameters, which also imply lowered construction costs. Mr. Puri sees an increase in private equity funding for affordable housing projects in 2010, since the demand for such projects is inflexible and assured. The emphasis will be on projects by established brand names that show sufficient potential for fast completion and absorption.

Green developments are increasingly becoming the hot favourite for the real estate sector. Bringing a number of benefits for residents such as better lifestyle, more ventilation and an opportunity to conserve resources, the viability of investing in a green building is, undoubtedly, attractive. The year 2010 is expected to bring in more green developments. Says Vidur Bharadwaj, director, The 3C Company, a real estate firm dedicated to building green, “People will realise how such ecological structures are a necessity. There already is a greater level of awareness among people and they think of them as a good investment. More developers will eventually need to address the growing demand in this segment. I think going forward, there will be a greater focus.” The developer has upcoming residential and commercial green projects in Noida and Gurgaon. Many other developers are starting to including green projects in their portfolio. Supertech, for instance, recently announced ‘Eco-Citi’ in sector 137, Noida. The central idea here will be to develop an eco-centric construction using special generators and ecological sanitation methods. Upcoming projects of Raheja Developers — Raheja Atharva, Raheja Navodaya and Raheja Vedaanta have received green gold rating from the Ministry of Environment. These projects will use green technologies such as CFL lighting, double glazed windows, solar water heating and water recycling. SK Sayal, director and CEO of Delhi-based Alpha G:Corp says: “Our main focus has always been green real estate. There will be a renewed focus on the environment in 2010. People realise the immense advantages that can accrue by investing in green developements. Moreover, the initial costs are not very high...it’s only a little higher but that more than makes up for the long term benefits of such projects.” Alpha G:Corp is developing green projects in Gurgaon and other parts of Haryana as well as at Amritsar.

THE YEAR 2009 has questioned the vulnerability of real estate investments. The belief that land is out of production and will never lose sheen was challenged. Not to mention that the global economic events had their fair share of impact on our markets as well. The euphoria of the boom days had led many developers to scale operations to unsustainable levels, taking aggressive positions on the back of significantly high debt levels. The rapidly changing economic environment also put pressure on business margins and their ability to honour commitments both to lenders and customers alike. Several developers had to restructure businesses and exit non-core areas of business to keep liquidity concerns at bay. However, in the last quarter there has been an increased activity by both investors and occupiers. While the final verdict on economic revival may still be pending, the uptake in housing sector has definitively shown signs of recovery. Confidence from the institutional investors — reflected in multiple successful QIPs — and domestic demand suggest that we may be out of the bottom for now. External factors like softening of interest rates and improving employment outlook have helped in making the outlook sanguine. With the changing global environment there will be increased interest in green buildings. Though it may seem only as an additional cost burden today, carbon credits and improved operational efficiency will go a long way to keep the investors’ interest intact by being a standard of preference by occupiers. Growing by the strength of fundamental and sustainable demand, positive GDP growth forecast and general improvement in investment climate, one can say that 2010 will be a favourable period for investors. Also, at current price levels and from a long-term standpoint, the real estate sector does appear to be an attractive asset class. From a risk standpoint, one has to keep a tab on a few factors such as continued sluggishness of global economy, execution risks in the local market and overall liquidity situation. It is, however, important for investors to remain focused on personal investment objectives at all times. Timing is everything in investing and one must cherry pick the right stock/assets at best values. With infrastructure playing a pivotal role in India’s growth story, great opportunities lie in new growth corridors as an investment opportunity. By Sanjay Verma, Executive MD, South Asia, Cushman & Wakefield.