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Dubai: India's journey towards a home-owning democracy, and Padmakshi Financial Services' continued recommendation to buy the dominant property financiers (HDFC - Under priced on a one-year basis), leads me to the rhetorical: Are the Indian and US real estate markets in different stages of the same journey?
Separated by several twists of the economic cycle maybe, but two big countries with large educated populations looking to better themselves en masse? While the US cycle is in a temporary downturn, if the Indian cycle is behind but revolving in the same direction, it has to be worth a status report - if the end result is widespread property ownership. For that report, I delved the recent Padmakshi Real Estate update.
This space has bashed the Indian equity drum for some time, but for the non-NRI Gulf News investor there is only so much Sensex volatility you could (or should) take. Fine for actual NRI's (future residents of India) to take the long term view and hold onto the handle-bars of the white-knuckle Sensex roller-coaster. They aren't exposed to currency risk and future lifestyle risks presented to the non-NRI, non-Indian investors. So, my rhetorical reaches out to those who are at their limit of Sensex-related exposure.
Exposed? Consider this: The Sensex has advanced around 10 per cent in April, but retreated 5 per cent in a week when I last looked. While still holding out for a good long-term story, it's going to be bumpy.
Rohit Chothani at Padmakshi tells me: "It's vital to temper expectations of equity investors -the 16 per cent to 18 per cent per annum longer term average will be nearer to realistic expectation management than the 45 per cent per annum of the last 5 years."
So bullish on India but buyers of Indian diversification? Read on, and to start with: Where are we on the commercial and residential Indian property scene. The Padmakshi brief reads:
Commercial
1. Go green is the new mantra adopted by all the leading developers across the country to lure clients through its long lasting benefits. Chennai is the leading with the highest number of existing green buildings.
2. Bangalore, Chennai and Pune markets are witnessing fair flow of supply last few quarters and thus, stability along with marginal alterations is observed. Non-IT space demand continues to ascend.
3. Average gross yields in commercial real estate across the metros range between 10-13 per cent
Residential
1. Demand in the luxury segment in city centre properties continues to outpace the supply in all the metro markets.
2. With the foray of big developers in all these metros in the outskirts, the domination of few players is declining and giving rise to competition in developing good quality projects. This is favouring buyers.
3. Incorporation of unique concepts in projects is in the trend and the latest one being the 'Smart Homes'.
4. Average gross yields hovered in a range of 4-8 per cent across these metros.
I recall looking at some fancy Victorian but run-down premises in fairly central Mumbai. Built by the "Britishers" and run down by time and rules that encourage squatting at low rents. An obstacle in the push to a home-owning democracy? "That's all changing" says Chothani, "Property Developers are forming a significant voice in India Inc. and by degrees we will see the asset class mature".
Supporting the statement, Chothani mentions the increasing interest shown by Private Equity players. The biggest real estate deal the country has seen is a sure indicator of the growing demand for real state as an asset class. That deal saw a consortium led by Delhi-based BPTP buying a 95-acre commercial plot in Noida for Rs50.06 billion ($1.22 billion). This is a price per square metre of Rs1,30,207.
What does this all mean for the outlook of Indian property, I asked Chothani. Firstly, "we expect to see the market continue with the same momentum, sustained by strong demand, strong FDI inflow, and the support of government-led infrastructure development", although, just like anywhere else it seems: "developers will have to adopt innovative techniques to keep a check on spiralling construction. In addition, with finance costs also on the rise, developers and Private Equity projects will be pressured into delivering affordable housing solutions".
Nevertheless, Chothani is more the bull than the bear; "big project commitments by major companies coupled with growth in retail, housing, logistics and industry, will be the key elements of the real estate sector in 2008". Successful people and businesses need to live somewhere right?
- The writer is chairman of Mondial Financial Partners.
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