Reflections 2018 & Outlook 2019: Real Estate Market Makes Strong Comeback With Growth Trajectory
Here are the trends that have been observed in the Indian real estate
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The year gone by has shaped the real estate sector to accustom to the numerous compliances that would guarantee quality construction delivered to the homebuyers. The industry as a whole has seen both the turmoil and the prospect that is likely to be the trend in 2019 as well. The big bang reforms implemented have brought about an imperative change in the tax, regulatory and business environment in India. Post demonetisation, the introduction of RERA and GST improved the transparency and answerability in the sector, thereby catching the attention of institutional investors who are now looking at Indian real estate with renewed dynamism.The real estate law operated to address the biggest issue concerning buyers on timely delivery of the projects they have invested in.
Moreover, the grant of infrastructure status to affordable housing was a great move for the sector. The government also announced Credit Linked Subsidy Scheme (CLSS) during the year, thereby making loans available at much affordable rates, thereby benefiting both buyers and developers. Under the scheme, interest subsidy is credited upfront to the loan account of recipients through lending institutions resulting in reduced effective housing loan and equated monthly instalments.
The upcoming year will be the year of consolidation in the industry, where developers with deep pockets, commitment to corporate governance and transparency will sustain their operations while non-serious players will be weeded out. Though RERA, GST and demonetisation hit the real estate industry in the short term, these reforms are bound to benefit the sector and the economy in the long-term.
Not ever in the history of Indian real estate have so many most important events taken place within such a short period of time. Indian real estate has also witnessed a ‘systems re-boot’ – beginning with demonetization, the legislation on Benami Properties, RERA, GST followed by the amendment to the Bankruptcy and Insolvency Code.Furthermore, the Union Budget for 2017-18 catered affordable housing with infrastructure status and the Pradhan Mantri Awaas Yojana (PMAY) offer interest subsidy schemes to incentivize affordable housing segment.
Even though India has enhanced on the ease of doing business rankings put out by the World Bank, the one inflexible category that hardly moved was the ease of dealing with construction permits where the movement was from the 185th rank to 181. For the real-estate sector to in fact start seeing aupright momentum of sales which is essential to increase the overall GDP of the countrythere needs to be a steady tax structure and tax regime. The presentchat around taxing the unsold ready inventory with developers further leads to uncertainty in the mind of the home buyers. This causes further postponement of the decision to purchase a home. This is unfavourable to the industry and the economy
Developers and buyers both have elevated their game; buyers have become bolder with more transparency and prospects in the market and the developers have observed a more suave and regulatory business process. As developers have responded well to GST ad RERA, they will try definitely not to pass on any extra cost burden to the end user. Today’s market is very much steady for buyers;choices are accessible, making it a good time to capitalize in a house. Also the latest move of linking the Adhaar with all the property transactions and augmentation in carpet area, are all positive steps taken for the growth of the industry which is profiting buyers and developers too.
The Securities and Exchange Board of India (SEBI) has given its approval for the Real Estate Investment Trust (REIT) platform which allows investors to invest in the Indian realty industry. This would aid increase of the cash flow in the sector and create openings worth billions over the years. Likewise, the liberalization of the FDI norms will further improve the cash flow into the sector and encourage a robust environment
These are the trends that have been observed in the Indian real estate.
Ever increasing housing demand
Although past few years have observed comparatively lower transactions in the residential sector, housing demand in the country has been quite high. With an ever-growing population of 1.3 per annum, urbanization, the rise of nuclear families, increased disposable incomes, and monetary benefits have become a vital factor for the constant rise in housing demand for about 10 million per annum.
On the other hand, in the current times, most of the property developers are simply focused on luxury to mid-end housing, while much of this demand was in the affordable housing segment. This required some impetus from the government for developers to concentrate on affordable housing segment. With the government nod of infrastructure status to affordable housing in Union Budget 2017-18, this sector is anticipated to grow at a high pace.
Pradhan Mantri Awas Yojana (PMAY) is an initiative launched by the Government of India in which affordable housing will be provided under the scheme ‘Housing for All by 2022’. Developers can now have options for diverse and cheaper sources of funding, including External Commercial Borrowings (ECBs), which eventually can lower the borrowing costs of developers, who should pass on the savings to the buyers and investors. New reforms have also revised the size of affordable housing units in big cities, which is more in line with the markets. Besides, banks are also willing to lend these projects at attractive interest rates, which will result in easy and cheaper financing options to end users as well. With this various property developers and builders in India are gearing up to develop affordable housing projects, which are expected to improve the market sentiments in the time to come.
Developers will revamp the business model:
In 2016, developers launched number of projects and there was no assurance of completion of them. On the other hand, by way of RERA, a deadline has been given for these projects to be completed and it will compel the developers to improve their business model. This will bring more transparency and accountability into the system. It has also led to an increase in end users’ confidence. The GST will also have a resilient impact on how developers run their business. Improvements in India’s overall credibility with the transformation of regulatory framework have built up an attractive destination for both global and Indian investors. Observing at this trend, the anticipations from private equity is high in the coming years and it is projected that 2018 and 2019 will be even bigger years for FDI investments in India.
The rise in co-working culture:
Gone are those days when offices were just about desk and chair. Today, workspaces have shifted its emphasis to saving time and money, along with fabricating a community and culture of working better together. There is a global rise in co-working culture and start-ups prefer these flexible working spaces at affordable rates. Companies that have limited space requisite are now leasing out their office space and giving rise to hybrid spaces. This trend will continue throughout the year. Co-working has become the new age of workspaces and it’s here to stay in India.
In the past few years, owing to the slowdown of the realty sector, comparatively few sales and lack of financing options in India has led to various developers over-leveraging themselves. This means that most small-time developers may either have to sell off their assets or enter into JV with big and more reputed developers to save them from this financial mess and deliver their projects. With this consolidation of property development market on the cards, the highly congested real estate sector in India is estimated to become a lot slenderer and malicious. With consolidation happening by the ways of joint developments and joint ventures between landowners and/or small developers with bigger, better-organized players, smaller developers being bought out by larger players, and struggling developers cashing in their land banks by selling them to players with stronger balance sheets and appetite for growth.
This may be a lengthy process, for the time being, however, the preliminary feelers of this process are apparently visible in numerous markets in India. Several minor builders with half-baked projects are already looking for investments and rescue from big brothers, with many more sitting on the fence to gauge the initial results. This consolidation will surely flush out all the bad elements from the real estate market and it is expected to be more transparent, level playing and promising market for foreign and domestic investors.
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