Viewpoint

Property, Polls and Policies

December 2014
In the wake of the new government, RAMESH NAIR gives insights into the business of realty.

In the light of the recent national electoral outcome, and an overtly positive result for Prime Minister Narendra Modi, sentiments have improved across the nation and we can already see the results. The new government has reduced bureaucracy and led to more efficiency in decision-making.

There is no doubt that the actions and inactions ascribable to the previous government had made homebuyers and developers anxious. The new government´s economic and employment policies will be key drivers to growth in the real estate sector for the next five years. The years 2012 and 2013 were not the best ones for the Indian realty market, and the slowdown impacted all asset classes, except in a few pockets. Revival is no doubt the need of the hour, and steps are being taken in the right direction.

Realty after elections
On May 16, 2014, the people of India spoke and in a show of unified ideology, they elected the Bhartiya Janta Party (BJP) government with an unrivalled majority. While this may not change the economy overnight, it does ensure that the next five years will see a stable government in power with the ability to pass progressive legislation and make meaningful changes to the bureaucracy.

Over the last few quarters before elections, political uncertainty had significantly weakened buyer confidence in many regions. A decisive win for the NDA has uplifted homebuyer sentiment and the property market will soon see a return of buyer demand due to the reinstatement of confidence. Property buyers may re-enter the market in good numbers.

Great expectations
Political uncertainty certainly has a tangible effect on the Indian real estate market, and it is not easy to separate it from the broader economic factors such as job creation and interest rates. A better vision on infrastructure will help make the market more buoyant. New infrastructure initiatives have a tendency to boost pricing of residential property in the immediate vicinity.

The BJP manifesto mentions several initiatives in the infrastructure space, with an intended spend of $1 trillion on upgrading India´s infrastructure over the next decade.

It also commits to significant expansion of and improvement in the Indian Railway network, including covering a million plus cities by high-speed rail. The manifesto also mentions upgrading the port sector, developing inland waterways to strengthen infrastructure and encouraging public-private partnership for the creation of world-class airports.

The manifesto of this party´s strongest opponent has a lot to live up to. Considering the disdain with which it dismissed the opposing party´s manifesto, what the real estate sector would expect from this party is a dedicated focus on housing and infrastructure investment, given its vision of a 12 per cent GDP growth rate.

The key factors currently at play in the Indian real estate are unsold inventory, absorption and interest rates. It is unlikely that these factors will change immediately post polls, regardless of which party wins. Over the longer term, what will matter most to the real estate sector is a hard re-look at FDI in housing, REIT legislations and the effective implementation of Real Estate (Regulation and Development) Bill.

The Reserve Bank of India will pay a key role in the post-election scenario, be it in bringing down interest rates for home purchase, or allowing flexibility to reintroduce subvention schemes, or restructuring debt for debt-ridden developers. RBI´s role in deciding whether to ease lending rates in order to make it easier for more people to qualify for a loan - and magnitude of down payment needed to buy a home - will also impact the real estate market.

A combination of bottomed-out property prices, low interest rates and a return of buyer confidence can create the perfect environment for recovery - and even a bull run.

If the incoming government is able to keep interest rates low and employment generation high, it will provide the platform for a far more stable and investment-friendly real estate market.

The ultimate test of Modi´s premiership will be his ability to provide the common man with a better standard of living and this can only be done with smart employment generation initiatives backed up with good relations around the globe.

Making a difference
Each aspect will have a tangible difference on real estate. The ´make in India´ campaign will focus on tackling the unemployment issue and the Japanese deal. Moreover, strong ties with the US will also be crucial at a time when the American economy is witnessing an upward movement, with unemployment dropping below 6 per cent for the first time in six years. To put things in perspective, the new government has been straddled with high expectations and so far they have made a good start down the right path.

About the Author:
Ramesh Nair, COO, JLL India, is also the Managing Director for JLL´s Western India region, which includes Mumbai and Pune. Nair has nearly 17 years of broad-based, practical, hands-on, professional expertise in most facets of the realty business. He is an International Director within the firm, which is the highest level in JLL, and overseas property and asset management, marketing and research functions for JLL in India.