Sotheby's, best known for art auctions, also has a real estate vertical in India - a luxury property consultant. Arnav Chowdhury, Sr. Vice President, North India Sotheby's International Realty talks to Business Today's Chanchal Pal Chauhan about the sluggish property market and new macro trends in the luxury space. Edited excerpts.
How has the market behaved in the past few years?
The Indian luxury real estate market still sees sluggish demand which is widespread across the sector. In this context, I feel that consumption in the real estate sector and especially on the housing front is dependent on several parameters.
Very often, consumption here is led by market sentiments. A positive sentiment leads to more consumptions/investment in the residential market.
We are yet to witness a very strong correlation between economic data and how the residential market performs. This is specifically true in markets in Delhi NCR, where the boom in property prices was driven by investors and not the end users. Investors enter markets on the assessment of making windfalls gains when they exit. For exits to happen there has to be another set of investors willing to enter/invest at a higher price or an end user looking for a house to live in.
Are you expecting any change in the scenario?
India has seen a circle of investments and exits, which is often disturbed when a new set of investor or end users are not available in the market. As new set of investors are not available, mainly due to liquidity and sentiment driven reasons, since they may already be invested elsewhere and unable to exit and hence generate income inflows. An end user may not be available, since this continuous investment/exits by investors has pushed the price beyond his income reach.
With the Indian economy experiencing a stable GDP growth rate of 8 per cent, there are strong signs of corporate revival, especially the very important IT/ITES sector and retail. This is expected to lead to general increase in consumption, including the realty sector.
Will this also impact the rental market. Have rentals improved over the past few months?
Taking cue from the current scenario, there is a high mismatch when it comes to affordability vis-à-vis location. In corridors where infrastructure is developed, projects are not available in terms of affordability.
In areas where projects are available within the affordability range, the locations are far from the central business district, with limited or negligible social infrastructure like schools, hospitals, public transport with security remaining a major concern.
For example, an end user with a budget of Rs 2 crore for a house, will find it difficult to get a suitable one in some of the existing corridors of Gurgaon with good infrastructure (Golf Course Road, Sohna Road, Golf Course Extension Road, etc). Keeping in mind that an end user with a budget of Rs 2 crore is someone who is at the middle management level with good salary and doesn't want to compromise on the location.
In such a scenario, an end user ends up renting a place rather than buying in a location he likes. With rental versus capital in residential not more than 2 per cent, it's been slowly realized that renting makes better sense than buying a house.
Rental markets for residential should continue to show steady movement. With high capital values, rental is more preferred. Moreover, since most of these inventories were purchased by investors, supply is quite abundant for rentals.
Is there any visible change in the retail space. Any push in consumer retail or is it still languishing?
We have witnessed an increase in commercial activity in the recent past. Strong commercial activities with setting up of new business districts, habituated by prominent corporates, leads to a spurt in housing demand in the surrounding areas. With commercial activity showing signs of revival in certain important corridors, the consumption is expected to increase.