Only bears will book gains
Real estate
By Vasu

THE quantitative increase in foreign equity investment in India since last year will soon reverse the current slump in commercial properties across the country, says Azhar, an analyst with an international real estate consultancy firm. The two major foreign exchange inflows into the country are in the form of debt and equity. Debt signifies Indian companies seeking money from abroad for transacting business within and outside the country, while equity inflows are indicative of businesses actually coming into India.

Last year the debt inflow totalled $8 billion, whereas the equity inflow was pegged far below at $3 billion. In the current fiscal year, the equity inflow is higher than the debt, the FII inflow is $1billion and the FDI (foreign direct investment) has totalled $ 2.5 billion in the first five months. For the entire year, even conservative estimates project that equity inflows will far outstrip the debt inflows.

How does this all tie-up to the real estate market? Azhar says that this increase translates into fresh entrants into the Indian market with a rise in demand for prime commercial space and residential accommodation for its employees. This will lead to a reversal of the current decline in rentals besides boosting long-term investments for office space.

The effect of this increase in investment is not going to be ‘metrocentric’ and will also touch the smaller towns and cities, as global businesses today target smaller areas owing to their immense untapped potential. Places like Mohali are to be the next developmental nodes with multinationals commissioning studies by leading real estate consultancy firms to project future expansion and operation plans there.

However it is time for realtors to actually cater to the special needs of this prime segment of buyers. Studies have shown that affordability of space figures low on the deciding list when business houses are picking up space. Proximity to residential areas for employees, adequate parking facilities, good telecom links, basic infrastructure and multiple lifestyle options in the form of restaurants, entertainment alleys in the vicinity of the workplace are multiple factors which help determine locales.

The times to come can be gauged by the biggest single commercial deal for commercial office space in recent months when French Bank Credit Agricole Indosuez gave Rs 27crore for an entire floor of a commercial centre at Nariman Point. The transaction at a rate of Rs 17,000 per sq. feet is being viewed as a sign that big firms, who had turned bargain hunters and

had begun preferring picking up space in the suburbs, are back where the action is. Though the rate at which the deal has been carried out is much lower than the Rs 23,000 per sq. feet which a similar property had fetched in 1997, companies are now showing interest at current price levels and the transaction indicates the return of more realistic pricing.

Interest in prime commercial centers in Delhi would not have waned, says Alok Mehndiratta, were it not for the contentious issue of the Delhi Rent Control Act. Buyers would normally be back with such depressed rates for the prime commercial centres of the city but for the uncertainty dogging the Act. Investors, Indians or foreigners, like a policy in place but with the ‘here today, gone tomorrow’ nature of controls and amendments concerning rents, buyers and investors are adopting a wait-and-watch attitude here. With successive governments and now candidates touting different amendments to protect the various lobbies they represent, an early enactment in its existing or modified form seems a long way off but is desperately needed before the prime commercial centres become an attractive proposition again.

Other key market factors are also in place. Property is picking up, stock market is appreciating, and Pokhran and its aftermath are now history. Thus with all positive signals in place, it is only a matter of time that speculative interest will return to property. But a word of caution for those who expect instantaneous gratification: the property market took nearly years to go bust especially in Chandigarh and surrounding areas, so it will be a folly to expect it to boom tomorrow. It is only the bear who will be able to book gains.