Real estate markets are unlikely to witness a ‘V’-shaped recovery, argues Mr Amit Bhagat, CEO and Managing Partner, ASK Property Investment Advisors. The group, which currently has a real estate fund open for investment, will deploy money in a staggered manner, in line with the slow recovery anticipated. In an interview with Business Line, Mr Bhagat explains the current price situation in key realty markets and the fund 217;s investment strategy.
The developer has to either keep prices low or tie up with funding agencies such as private equity and complete the projects to get a delta premium for the built property:
Excerpts from the interview:
If you believe this is the right time to invest, then why have you chosen to invest in a staggered manner?I am very clear that it is not going to be a V-shaped recovery from here.
For one, real state markets do not have V-shaped recoveries anywhere; 1996 to 2002 was flat, then came the boom. In fact in 1997, there were commercial complexes left midway in construction and completed only in 2001-02.
Two, interest rate cycles vary. In the earlier cycle, it took eight years for interest rates to decline — interest rate in 1996 was 16 per cent, in 2004, it became 7 per cent. Cycles are much shorter today. There has been a 25 per cent reduction from 12 per cent to 9 per cent in 10 months.
But when is the buyer stepping in today? Look at the market over the last six months. In 2008, people did not buy. In the first quarter of 2009, too, they did not buy, when the prices fell by as much as 35 per cent.
Now they have stepped in because it is a value buy, despite the construction risk involved. So, today, the customer is looking at a value buy. Therefore, the developer has to either keep prices low or has to tie-up with funding agencies such as private equity and complete the projects to get a delta premium for the built property.
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