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Where your investment is on a safe ground

– Photo: H. Vibhu

A good option: Investing in the real estate market is a safe bet, say experts.

Real estate has become the most important investing avenue in the country because of the boom in demand for properties. Experts even see the bullion prices coming down in anticipation of further growth in real estate market.

Though demand is usually dictated by considerations of affordability and the economic situation, it is seen that even in advanced countries, where population growth is low, real estate continues to be a favourite investment, said A. Harikesh, vice-president, Strategy and Product Development, DLF Home Developers Limited.

Real estate developers entering the capital market is one of the latest trends that has set in, said Mr. Harikesh. This step is bound to bring in more transparency and increased general participation in the business, which was earlier dealt only by a miniscule.

Reforms in the sector will add to the transparency in the sector. Innovative banking products are a boost for the growth of this sector, he added. The real estate growth over the last three years was rather heady, he said. In the coming years, it may not have the kind of exponential growth, but it will be steady enough to provide one of the best investment options, he added. The market will not be in a lull as some may like to say, he said. He said that real estate business was mainly localised until recently, where local players ruled. However, the face of developers has changed into a mix of local, national and international players.

The growth in real estate are of three kinds, said C.V. Ignatius, HDFC Limited Kerala general manager. One is the demand for residence, the second is the demand for office space because of the immense support the IT and ITeS sectors are getting from the Government and thirdly the boom of big retail market across the country.

According to Mr. Harikesh, the real estate demand in residential sector is about 75 to 80 per cent. Of course, the kind of home is led by individual desires and aspirations, he added. Amit Bhagat, joint general manager and business head, property services, ICICI Bank, said that there was considerable growth in the real estate portfolio of the bank with an increase of 8 percentage points from 16 to 24 per cent in the last couple of years. There is much demand for commercial and retail real estate investments, he added.

Besides, there is also a movement of people from their own area of operations to other high opportunity places with banks showing interest in the people’s investment desires. People far away from Kochi can invest in real estate here through the bank, he said. Or someone in Kochi can buy a property in Pune, which is one of the fastest growing cities in the country, Mr. Bhagat said.

The country’s high Gross Domestic Product growth of more than 9 per cent is responsible for fuelling the growth of real estate too, opined Mr. Harikesh. There has been a high level of employment generation and there is a segment which has a high percentage of disposal income, he added.

While everybody agrees that housing needs in the country fall short by at least 20 million to 24 million dwellings, high cost of construction, price rise in real estate and lack of quality land in fast growing cities continue to hold back the need of shelter for many.

Experts opine that the rise of the middle class and the high income group will be the major thrust behind the real estate growth. Hence, when prices continue to rise, the purchasing power of the people will also rise because of the high income of the people in these groups.

Urbanisation is yet another reason that has accounted for the growth of real estate and property. Mr. Harikesh provides interesting statistics on urbanisation. From 1991 to 2001, the urbanisation rate was at 3 per cent. From 2002 to 2005, the rate of urbanisation was 3.8 per cent and from 2005 onwards it was 5 per cent and more as against a population growth of 1.3 per cent.

He said that urban population, which would form 41 per cent by 2015 against 27 per cent in 2000, would call for a shift of approximately Rs. 24 crores of people from 2005 to 2015. Urbanisation and income growth will be the wheels on which real estate market in urban areas will be driven, he said.

There is a definite shift in the age of first time borrowers from banks, said Mr. Ignatius. Earlier, the average age was around 40 years, but now it is 30 years. The advantage of the country is that 50 per cent of the population is young and has potential to contribute towards the growth of the real sector. Further, there is also an increased penetration of finance, making housing more accessible, he said. HDFC showed an increase of 20 to 25 per cent growth in housing finance last year, he added.

Some of the real estate trends in store will be an increased consciousness of brand, said Mr. Harikesh. Consumer will be the king here and hygiene factors associated with any purchase will be taken for granted. Continuous upgrading of property will be part of the lifestyle.

Earlier, people who had built a house would never think of owning a second house. But now another investment in a house is not a matter of second thought. The lifestyle of people is changing.

People have started changing cars and many other things which were earlier never thought about, he said.

What drives the financial institutions to go in for promoting this sector is the high level of pre-payment against the loans, Mr. Ignatius said. The debt-averse nature of the middle-class helps in disbursing loans at a faster rate, he said. Mortgage as a percentage of GDP is 5 per cent in the country against 11 per cent in China. The Government’s role in promoting real estate as a major sector is rather immense. The Land Records Department is one department that needs to be modernised for smooth and transparent functioning land deals. The sector also hopes for reforms in the Land Ceiling Act with a stable regulatory environment. Speedy approvals of projects are an incentive to any industry.

Lastly, but certainly not the least, urban planning and infrastructure building are the focus of all real estate development. It is primarily a Government responsibility, which can be supported by private players.

In a place such as Kerala, where land is scarce, vertical growth is the solution. But for that the cities and the towns need to have a good road infrastructure, said Mr. Harikesh.

A low FAR is making the land prices and the cost of flats to shoot up. Availability of water is something that needs to be ensured by one and all, he added. Nobody in the country seems to be planning for water.

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