Labour, cement and steel costs will drive builders to try pre-fabricated...

Labour, cement and steel costs will drive builders to try pre-fabricated...

Ram Raheja, Director and Head-Architecture, S Raheja Realty
The year 2013 saw several challenges, increased cement and steel prices, convoluted policies, shortage of labour supply being some of them. The industry is optimistic about the coming year; after all, there is a large housing need to be met in the country. Ram Raheja, Director and Head-Architecture, S Raheja Realty takes us through 2013 and hints at what to expect in 2014. Excerpt from the interview.

How was the demand- supply ratio for housing in 2013 and what is the expected demand for 2014?
The Indian real estate market is highly segregated, with demand varying between two different cities and even two areas within the same city. Thus, it is difficult to evaluate the entire country´s market but overall, 2013 experienced a slowdown. With the Indian rupee going through an all-time low in 2013, it impacted the whole economy including the real estate sector. The falling currency value and rising inflation led to a lot of speculation and uncertainty in the market. As a result, buyers were scared to invest. RBI introduced several policy initiatives expected to improve the investment climate and business environment; though not fully functional, these laws will certainly bring about a positive climate in 2014.The year also saw hurdles in the form of a rise in the prices of cement and steel and a shortage in labour supply, which directly or indirectly, led to a corresponding hike in the prices of real estate projects.

Specific to Mumbai city, a sudden hike in TDR rates disturbed the developers as it meant that the land for redevelopment projects would cost a lot more, which would hamper the segment. It is expected that the government will implement the various new regulations discussed above to boost the sector and that 2014 will be a better year.

What credit policies / regulations will spur growth in the housing sector?
RBI and the government introduced reforms to help boost the real estate sector during 2013. This includes the Real Estate Regulation Bill which is expected to make the process of approvals a lot more transparent for both the developers and the consumers. The other step taken is the introduction of the real estate investment trusts (REITs) which will provide an avenue to real estate developers to commercialise developed property. It will also provide over-leveraged companies with an opportunity to de-leverage and increase the depth of the Indian real estate market while providing additional liquidity. Considering the economic slowdown and paucity of funds experienced by the sector in 2013, REITs are expected to infuse a fresh lease of life into an otherwise choppy market.

The Land Acquisition Act replaces the Land Acquisition Act of 1894 by establishing new rules for compensation as well as resettlement and rehabilitation. It has been passed by Parliament and will be effective January 2014.The most important feature of the Act is that the developers will need the consent of up to 80 per cent of people whose land is acquired for private projects and of 70 per cent of the landowners in the case of public-private partnership projects.

Do you expect a spurt in demand after the elections?
Like any other industry, the real estate sector is also looking forward to the 2014 elections as being a turning point from the slowdown experienced in 2013. Though the first few months will be slow, it should pick up from the second quarter onwards. The real estate sector is hoping for a stable government which will help boost the confidence of the investors and general sentiment in the market. The rise of income of the middle class and lower middle class is certainly helping market dynamics.

What are the key drivers for growth in the housing sector?
The key driver in any sector is always demand and there is a huge demand in the housing sector. An estimated 26.53 million homes in the budget category is required for urban areas by 2013-2014 while the need is double in the rural sector. With general economic progress and the growing income of the middle class, the demand for affordable housing is also growing. Thus, real estate will remain one of the main sectors for the coming years and if the government makes adequate changes and supports the market with its policies, growth is inevitable. Therefore, if the developers and the government work together to provide quality housing to its population, I believe 2014 will witness a change in the growth curve.

To what extent have cement prices impacted the housing sector?
Real estate sector is directly dependent on ancillary industries like cement and steel, and both theses industries saw a significant price rise in 2013. According to the Indian Realtors` body CREDAI, cement prices across India had gone up by Rs 58-70/bag in the week to 23 September 2013. In Maharashtra, prices went up by 31 per cent in just a week. The cement manufacturing companies increased rates by Rs 30-35 for a 50 kgs bag. Such fluctuations lead to delays in project execution and hike in the construction costs. If the situation persists, it will impact the overall real estate market leading to delay in delivery of projects and will also hike the prices of apartments.

What are your expectations about cement prices in 2014?
The cement industry has been hit by the prolonged monsoons of 2013 and the first quarter of 2014 may suffer due to that. Hopefully, the sector may pick up in the second quarter but that will depend on other factors like the cost of raw materials, labour costs, etc.

Do you foresee of the increasing use of RMC for realty projects?
Construction processes are witnessing a lot of change whether in terms of processes or choice of raw materials. With the hike in cement prices and labour costs, RMC is surely going to gain momentum in the coming years. Besides, with the huge need for housing in the country, materials that help speed up the process are required.

What are the major bottlenecks in the industry and what needs to be done to address them?
The bottlenecks are primarily in terms of delayed projects or the ones which get stuck in the approval process. If these processes become more transparent and faster, the sector will be unclogged. Also, if the prices remain fairly constant and projects are completed in time, inventories will not build up and the market will run smoothly. All this is possible if the economy becomes more stable.

What new markets trends are we likely to see in 2014?
Mid-income and budget housing will see a great demand this year. Markets in Tier-II and Tier-III cities will continue to grow. With an emerging middle and upper-middle class, second homes and condominiums with club house and sports facilities will also be in high demand. Labour, cement and steel costs will drive builders to try pre-fabricated and new age materials, and new methods of construction.

Specific to Mumbai city, a sudden hike in TDR rates disturbed the developers as it meant that the land for redevelopment projects would cost a lot more, which would hamper the segment.

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