‘Indian realty poised for stelllar growth’

Paul Gordon & Manash Goswami

NEW DELHI:Samit Chopra, national director of corporate solutions at Mumbai-based Jones Lang LaSalle Meghraj comments on the outlook for growth in India’s real-estate market and the impact of interest-rate increases.

On real-estate growth…

The real-estate market has been growing pretty rapidly over the last two to three years in India. Residential, commercial, hotel and retail are all showing signs and have been growing at a pretty stellar rate over the last 2-3 years.

The growth pattern will continue over the next two to three years if not more. We would be seeing some really stellar growth across the real-estate sector.

On the property bubble bursting…

Prices have escalated pretty significantly in markets like Mumbai and Delhi over the last 18 months or so, primarily because of low vacancies and very high demand from financial services firms and other corporate and back-office firms.

We should see some rapid supply come in to the market, which should cool down the market a little bit. But, I won’t characterize that as a bubble-burst.

On interest rates…

The central bank has raised interest rates over the last year and a half. They have gone up almost 400 basis points since 2006. The major impact they have had is on the residential real-estate sector.

However, I hear that banks such as the SBI, HDFC and some leading financial institutions are already talking about reduction in floating interest rates especially for residential properties, which should help fuel some more cash into the residential sector.

I don’t see too much impact of that on the commercial real-estate sector.

On investment strategy…

It depends on what your investment objectives are: the risk-reward appetite, the size of investment, the holding period, and whether one is looking to generate cash flows or maximize capital appreciation.

Each of these will guide your investment decisions. If you are looking to generate cash flows, you are probably going to focus more on the commercial properties, which do generate yields in the range of 10 to 11%.

However, if you are looking for capital appreciation, then you are better off looking at residential properties, which give a lower yield, or a lower rental income, in the range of 4 to 5%, but do pose a better chance of capital appreciation over a short-term.