"The residential market will be the driving force of the Indian real estate market going forward..." – Pranab Datta, Chairman, Knight Frank India

What is your take on the recent trends in the real estate sector?

Economic growth in the last few quarters has remained stagnant, with the manufacturing and service sector growth rate reducing with each passing quarter. The real estate sector is not immune to this, and hence, the impact has been similar. However, there are certain markets that have witnessed strong demand despite the overall slowdown in the economy. Absorption in cities where there is sufficient end-user demand such as Pune and Bangalore has remained strong. Markets such as Mumbai and NCR, where investor participation is very high, have remained subdued in terms of absorption as the prices have reached an unaffordable level for end users.

Do you think this is right time to get into realty, or should one wait for some more clarity and for some rationalisation in the market from here?

The right time inherently depend on the price that one pays. In the current scenario, although the prices quoted by developers remain high, prospective buyers can find good deals in investor properties. Since it is a buyer’s market, home buyers can negotiate aggressively with the developers. They can also opt for investor properties that are available at a 10-15 per cent discount to the market rates.

Which regions, according to you, are looking good as far as the realty sector is concerned?

For residential property, Mumbai, NCR, Bangalore and Pune, and for commercial property, Mumbai and NCR are looking good.

Have you witnessed any improvement in volumes in the past few quarter? If yes, do you expect this to sustain?

In the residential segment, the volumes across most of the cities have remained subdued in the last few quarters. However, the ongoing festive season is expected to improve the sentiment, which could lead to an increase in sales in the coming months.

Have you witnessed any improvement on the realisations front? If yes, to what extent?

Similar to volume, the prices have remained subdued in most of the markets. However, in certain cities like Pune and Noida Extension, the prices have moved up by eight to 12 per cent in the last few months.

What impact do you foresee the recently carried out reforms would have on the economy in general and on the realty sector in specific?

The recent economic reforms have already boosted investor sentiment, with the stock markets, as represented by the Sensex, increasing by 15 per cent since May 2012. The real estate market too will start witnessing the impact of this in the coming months. The government is already in the process of passing various real estate regulatory bills with the intent of sending the right signals to investors and home buyers.

What sort of impact do you expect the Land Acquisition Bill will have once it is passed as a law?

The bill will bring in much-needed transparency in the sector and will work to the benefit of all the stakeholders. However, the implementation of the law will be in the hands of the respective state governments as land is a state subject. Therefore, the success of the bill will largely depend on how swiftly each state government passes it in their respective Assemblies.

Many realty companies are still debt laden. Do you see any improvement happening on that front?

Since real estate as a business is highly capital intensive (land) and has a longer gestation period, the sector is bound to have a higher level of debt. However, what is important is the ability of the sector to generate sufficient cash flows to service such debts. Currently, most of the realty companies are unable generate enough cash due to the slowdown in demand. However, things are set to improve in the coming quarters as the economy recovers and demand starts picking up in the realty sector.

Which segment (residential, commercial or retail) do you expect will drive growth going ahead?

The residential market will be the driving force of the Indian real estate market going forward, as there is still a huge gap between demand and supply. The retail market will also witness a lot of traction due to the recent reform measures in the FDI policy.

Many leading companies have gone ahead with the distress sale of some of their assets. Do you expect such a scenario spreading out more going ahead?

Overstretched balance sheets have exposed these companies to liquidity risks. The distress sale of assets is bound to continue till such time as these companies are not able to generate sufficient cash flows to service their debts. The sale of such assets will continue for the next couple of quarters as these companies try to reduce their debt levels to an acceptable range.