Impact of General Elections on Indian Realty Sector

With the General Elections, 2014 round the corner and political parties engaged in verbal duels around the country, issues pertaining to public interest have been put on the back-burner for the time-being. The real estate sector which was reeling under a deluge of issues that included economic instability, rise in prices and slow moving inventory, the impending elections have extended that weak run by a fair bit. New residential projects have been temporarily put on hold due to the decrease in sales for residential projects resulting in developers facing a liquidity crunch.

Pitfalls faced in 2013:

As far as the Indian economy is concerned, the year 2013 was not a good one. Contrary to the GDP growth of about 6.2 per cent in 2012, the year 2013 saw the GDP plummet by 5 per cent. The measures taken by the RBI like steps to control the  depreciation of the Rupee went a long way in negating the ill-effects of the economic slowdown. Even though many measures were taken to improve the GDP as well as improve the growth rate of the economy, if did not have much of an impact. Many factors like the increase in the interest rate, decrease in industrial production along with political uncertainty had caused a severe dent to the sector. The stagnation in income levels along with the rise in inflation had caused many buyers to tighten their purse strings as far as expenses and investments were concerned.

Apprehensions raised:

Due to the slackness in economic conditions, the real estate sector was put under tremendous pressure. Most buyers refrained from investing in residential projects despite attractive offers and discounts offered by developers. Currently, the realty sector is caught in a conundrum due to the restrictions imposed on policy-making, on one hand and the political uncertainty due to the Lok Sabha elections on the other. The Lok Sabha elections has cast its shadow on the realty sector in such a manner that the Indian corporate sector is apprehensive about the economic ramifications of the political stalemate. Realty experts feel that things will start looking up for the sector only after the General elections, in the second half of 2014. It is also felt that the demand for residential property is likely to increase during this period, with increase in values to the tune of 10-12 per cent expected.

Expected Post-elections scenario:

The realty sector has been going through a torrid phase in the last three years due to  being sidelined by our policy makers. The last year in particular saw the sector going through a phase of stagnancy even though there were signs of a revival in the last few months. This scenario is expected to change drastically with the sector expected to take a U-turn following the General elections. A stable government at the Center is expected to speeden the revival process and result in an upsurge in residential demand and thereby in values as well. Besides, the passage of the Real estate regulatory Bill as well as the Land Acquisition Bill is expected to go a long way in assuaging the aspirations of developers and realtors. A sector-friendly Budget following the Elections will also contribute tremendously towards reviving the sector.