Across the industry, both developers and consultants agree that post-elections, the slowdown would give way to a much-needed spurt in construction activity, attracting the first-time buyers.
In the October-December quarter, the growth in the construction sector was an abysmal 0.6 per cent, as per the data from the Central Statistics Office. Production of steel and cement, which together have a weight of almost 9 per cent in the set of eight core industries, have also not fared well. While cement production remained below 6 per cent throughout the year barring one occasion, steel production could not rise above 7 per cent during the last fiscal.
We are hoping for a stable government. With that, we expect the buyers to start investing again. After the elections, first-time investors should immediately move in because prices are expected to rise. We expect the market to improve dramatically on a stable government, Navin Raheja, chairman, Naredco and managing director, Raheja Developers told The Indian Express.
He added that the election manifestoes of the two large parties have laid down several initiatives in the infrastructure space, which will act as catalyst for real estate activity.
The BJP, in its manifesto unveiled last week, has emphasised that its government will take steps towards the transport and housing sector for urban upliftment. It will initiate building of 100 new cities and expand the Indian Railways network, including covering a million plus cities by high-speed rail, among other initiatives.
In a note issued last month, ICICI Securities also said that while the outcome of the general elections in May would be crucial, better governance would lead to revival in infrastructure spending driving demand growth.
Sanjay Dutt, executive managing director, South Asia, Cushman and Wakefield, said, that the sector is affected by sentiments for a short period and takes a minimum of 12 months to see a positive change in economic fundamentals. Before the boom, a buzz is witnessed, said Dutt.
The sales velocity and overall real estate traction comes back only after a minimum of 3-4 quarter-on-quarter results start depicting real growth in GDP, corporate profit, and increase in job confidence, Dutt added.
Experts agree that though it is unlikely for the change to happen immediately post-election, it will certainly improve the investor confidence.
Post elections, if the economy looks stable, many fence-sitters would like to invest. There is a shortage of people willing to buy houses. People who want to buy a house for investment purpose would go in for it only when they have job security which comes from a stable government if we see a positive mandate from the new government, we are going to witness a good third and fourth quarter, said Getambar Anand, chairman and managing director, ATS Infrastructure, and president-elect, Credai.
Anand added that the stability will bring down the cost of funds, which is currently very high and would make it affordable for small developers.
Currently, among other challenges the sector faces, unsold inventory and high interest rates are the most significant ones. There is a liquidity crunch in the market where either people have no money to buy land or developers have siphoned off money from one project to another and are now struggling to complete projects and deliver.
Also, there are investors who may have sufficient funds but they are not willing to pump it in the sector due to the current uncertainty. Dutt said that liquidity crunch is likely to remain for a minimum of another 6-12 months irrespective of political results.
But, all the same, the sector is beginning to look very attractive in terms of kind of opportunities that are being presented and valuations most are asking. Unstable political climate, if witnessed may hold investors for some more time, but opportunistic and futuristic investors may further capitalise on this, said Dutt.
The revival would also depend on structural and fundamental reforms initiated by the new government. Structural reforms are required and the BJP is promising that. Moreover, in general elections if you have a leader who takes decisions, people are generally bullish. But developers should keep in mind that margins will not be same as before, said Sunil Agarwal, MD, Black Olive Ventures, a real estate consultancy. The current market is for products priced between Rs 40-70 lakh.
Affordability is a big issue currently. So I dont see a boom but I do see a revival of the sector, reflected only by November-December. If Narendra Modi forms the government, we would see a revival but if there is no Modi government, the revival may take as long as 2017. Its largely an investor market currently, more so in the National Capital Region. In fact, even NCR doesnt offer products for end-users who have a fixed budget, added Agarwal.
Among the structural reforms, while the proposal to relax the foreign direct investment regime in the construction sector is yet to fructify, the Real Estate Investment Trust Regulation (REIT), 2013, and Real Estate (Regulation and Development) Bill, are still a far cry. Their implementation would decide the course of the sector in the long-run.