Real estate revival story being scripted by investors: Analysts

Published: September 8, 2009

The real estate revival story is being driven by the residential segment, but contrary to the claims made by a number of developers that end-users are their main buyers, the current trend is being driven by investors. “These are investors who are taking an opportunistic view of the situation where prices have corrected considerably in many locations ,” says Sanjay Dutt, CEO business at Jones Lang LaSalle Meghraj (JLLM). He estimates that a good 40% of the stock sold in the last few months would have gone to investors. In Delhi-NCR , this figure might be higher at 50%.

“Investors are back in good numbers and before the curve goes up, they want to buy. Some who have bought are already hoping to book profits during this Diwali ,” he adds. This could be a precursor to further improvement in investor sentiments, since investors would take this as a sign to look towards a sustainable run in the future.

Investors took flight from the residential real estate market when the market crashed last year and many have been shy of venturing back. The last few months though have seen a number of affordable launches at price points, which have stimulated the market . Most developers have launched mid-income housing in the Rs 20-40 lakh range, which has created a movement.

While the short-term investor is there, interestingly, a good number of the investors are medium to long-term investors. “These investors are flocking to real estate because of the lack of other investment opportunities in the market at the moment,” says Ajit Krishnan , partner, real estate practice at audit firm Ernst and Young who feels the trigger for these investors was the drop in price points in the residential segment in the last eight months.

These investors are not purely speculative and are investing in real estate as a shelter against inflation , he says. Other investment opportunities today do not yield the same results.

Developers on their part are insisting that a majority of the buyers in their projects are end-users . As there is no set way to differentiate investors from end-users , Unitech looks at consumer behaviour to judge one from the other. “Investors usually are not too bothered about specification details , do not go for site visits too often . We have not seen such behaviour at our projects. It appears that a large majority are end-users ,” says R Nagaraju, general manager of corporate planning at Unitech.

Wherever prices have been brought down to attract customers , there have been investors but Aditi Vijayakar, executive director , residential services at Cushman & Wakefield says these investors are mostly long term. “These investors are using this decline in the market to buy another property which they can decide on selling after the project is delivered ,” she adds.

Alongside investors are endusers who are mainly interested in completed homes. “The question is of consumption. We are definitely seeing movement in completed properties which are being picked up end-users ,” explains Krishnan.

Prices in the residential market in NCR-Delhi and Mumbai have started to climb up in the last months or so and Vijayakar warns that it is a little too early to raise prices. “In the medium term, it will not be sustainable for developers,” she says. There is a concern that the few end-users who have started to show interest might be deterred from making purchases if the prices of homes keeps rising.

Source: Economic Times

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