Sanjay Dutt, managing director India, Cushman and Wakefield, talks about how real estate sector going to perform in 2016
The new real estate bill will ensure more discipline is introduced in the market and therefore many fly-by-night developers will be out.
How does 2016 look for the real estate market?
We think the market is about to turn. It may have a slow and steady turn over the next year and following year. But whatever we witness in commercial office space, for e.g., which is one of the yardsticks to measure how the economy is doing, we see the net office absorption rate going up, indicating more jobs and better work environments and better salaries and more job confidence. Certainly, the end user demand will pick up in 2016. Will it result in great returns in one year? No. But over next 3 yrs, perhaps yes. Because inventories will soon dry out in 2016 and 2017. And prices will firm up or perhaps many micro markets go up significantly.
From an end user's point of view should you wait for interest rates or property prices to come down?
Prices have bottomed out. But there are 3 factors I will consider from an end user's point of view. Clearly the end user should know that there will always some inflation in an emerging developing economy. So interest rates will at best come down to 8-9%. They've already reduced significantly or maybe a drop of another percentage. But the construction cost, the labor cost, the charges the state govt is asking from developers to give, the property taxes are going up and nothing is coming down. So how will property prices come down?
And by the way, the new real estate bill will ensure more discipline is introduced in the market and therefore many fly-by-night developers who were causing a lot of issues in the market will be out. Technically, 2-3 yrs from now, supply may go down. Under such circumstances, this is the best time to enter and certainly before its too late, which could be Diwali 2016.
From an investor's point of view, is it the right time to enter the real estate market?
I believe it is the right time to enter. There are still some opportunities out in the market wherein the developers are willing to give another extra discount, if you write the cheque today. And I see that when a lot of private equity real estate funds, who're cutting 100-150 crore cheques, are getting away with 20% discount on inventories. If those institutional investors can do it, I am sure to some extent, which is 5%, 7% which is huge too, would not be bad idea. So its the right time to enter for investors indeed.
What are the 3-4 nice locations , which are on your radar when you think of investment opportunities for a 3-5 yrs time frame?
In a market that is continuously growing, the new infrastructure project, the new corridors of growth, create maximum appreciation. However, you've not seen significant infrastructre growth last few years and the markets have conrtacted.
In this market, the closer to the nerve centre of the city will get maximum appreciation and the quickest, from an investor's point of view. If you can really afford, this is the best time to buy the best location, best developer, closest to economic activity, where jobs are getting created, demand is getting created and within the 25 km radius, demand for residential will go up. Therefore if you invest there with credible developers you are likely to gain the most.
What markets are these?
If you were to start from NCR, clearly Cyber City to Golf Road Extention , Dwarka Express Highway, these are good locations. The prices went up, the prices have come down. Will they go down further? The answer is no. In fact in Cyber City, even commercial rents have started to go up last 2 years. You should remain concentrated here.
If you want to play futuristic, you can go to Manesar and New Gurgaon side. But if you want to remain medium term, these are the micro markets you should consider
If you go to Mumbai, Central Mumbai has the maximum under construction supply coming up. This is a good time to strike a good deal. If you want to go the suburban pockets, Thane district really attractive, Goregaon is really attractive, Chembur and Wadala on the east side are extremely attractive. So if you stick to these markets you will gain and benefit.
I would say, the adjacent location to Kharghar, Kalamboli could also be extremely rewarding if you were to invest now. If you wanted to move to Pune, for example Karadi has a big job pool on one side, so Nagar road remains attractive. Can you pick up something in Karadi today, the prices have been stagnant. May be Wagholi, further down east would be a good opportunity.
If you were to go the Deccan side or the Hingewadi side, I think its extremely attractive & affordable market. Prices have been stagnant. If you can afford Wakad or Aundh or Baler or Balewadi, if not, Hingewadi which is close to IT parks where more absorption and investment is happening. I think its a good market.
In Bangalore, for example, Outer ring road is doing extremely well in terms of office absorption. If you commute for a job and its a nightmare, you'd rather be in a well connected location like Hebbal and adjacent locations at best perhaps like Yalahanka or on the other side White field and Sarajapur raod. Anything in between is a great opportunity.
If you go to Chennai also, old Madras road is extremely attractive. The most undervalued market is Hyderabad. So please go ahead and book as much as you can within Gachibowli, High Tech City or other micro markets.
When you move to Kolkata, for example, Raja hat you will continue to see growth and commitments near Salt Lake city where there is max IT spaces. So any location on that side or towards the old town will be equal rewarding and the prices are quite attractive.