The real estate sector is one of the most globally recognized sectors. You need to be conscious of the ins and outs of the industry, market trends to make smart choices that yield high returns. The real estate market in India is currently in the middle of fairly challenging times. In the last few years, there have been a few noticeable macro shifts that have challenged the realty sector.
Current state of Real-Estate market
The rise in Demand for Developing Micro-Markets
The last year has been stirring for residential realty, as sales and demand picked up across the country. In the first three quarters of 2018 housing sales rose by nearly 8% as compared to the same period in 2017.
As expected property prices saw huge rise in the top seven metros across the country – NCR (National Capital Region), Mumbai, Chennai, Bengaluru, Pune, Kolkata, and Hyderabad. But, what was more unexpected was the rapid rise of property prices in evolving micro-markets due to infrastructure and economic developments.
For example, Bhiwadi in NCR, Halol in Gujarat, Jamshedpur, Jaipur, Jodhpur, Sohna in Gurgaon, Airoli in Navi Mumbai, Pirangut in Pune and Madhapur in Hyderabad has seen huge demand for residential homes. Real-estate experts foresee that 2019 and 2020 will be the years of emergent micro-markets, with a call for quality residential homes as industry and economic opportunities nurture in these micro-markets.
Current commercial trends that Favor Real-Estate associates
The Real Estate Regulation Act (RERA) was passed by the Centre in 2016 to bring uniformity in real estate market and to protect the interest of buyers from malpractices of unfair builders. Earlier, the Indian real estate was unregulated and transactions severely favoured the developers. To counter this, the parliament announced RERA, the first regulator of real estate in India. It has increased transparency in real estate deals, improved accountability of builders, which has led to increase demands for buyers. Also it has put a lot of responsibility on builders which further halted new offerings in the residential space.
Case Of Oversupply
If there is one factor that hinders the reality sector in India, that is oversupply of residential properties. Study the chart below:
Major markets such as Mumbai, Noida, Gurugram, Bengaluru, and Ghaziabad have an average inventory in excess of five years whereas, Ahmedabad & Hyderabad have comfortable inventory situation. Even if sales do improve, it is unlikely to change soon.
The bigger challenge is that real estate as an asset class has not shown the kind of 20-30% annual price appreciation that we saw between the years 2001 and 2008.
For example, the property prices in Mumbai and Bengaluru have increased by just about 7.50% and 5.75% between 2013 & 2017 respectively, which is lesser than what you would have earned on your savings bank account. During the 4-year period, Delhi actually witnessed negative price growth of (-0.70%).
The demonetization exercise has put brakes on the growth of the real estate market as it made the prevalent use of cash in real estate transactions more difficult. Challenges like heavy liquidity, poor sales and high number of unsold properties are now faced by developers from the real estate sector.
The Government of India along with the governments of the respective states has taken numerous initiatives to encourage the development in the sector.
The Smart City Project, where there is a plan to build 100 smart cities, is a prime opportunity for the real estate corporations.
Here are some of the other major Government Initiatives:
- Up to December 2018 more than 6.85 million houses have been sanctioned under the Pradhan Mantri Awas Yojana (PMAY) Urban.
- Creation of National Urban Housing Fund was sanctioned in February 2018 with an outlay of Rs. 60,000 crore (US$ 9.27 billion).
- 1,427,486 houses have been sanctioned under the Pradhan Mantri Awas Yojana (PMAY) Urban in 2017-18. In March 2018, construction of additional 3, 21, 567 affordable houses was also approved under the scheme.
Implementation of GST
In 2017, GST was introduced with the ideology, “One Nation, One Tax.” The real estate industry contributes about 7.8% to India’s GDP and it is the second largest employment generator after the IT industry. The enactment of this tax law will alone solve the challenges faced by the real estate sector and help the sector to come out of its long slumber.
GST brings transparency in the functioning of the real estate sector; the overall increase in price for new residential properties could be lower than that for new commercial properties.
There were some troubles initially, but today the impact of GST remains largely positive. Seeing a noticeable increase in infrastructure developments and other real-estate projects, GST has made it easy to do trade in the country.
Real Estate Investment Trust (RIET)
Embassy Office Parks, a joint venture of the Embassy Group and Blackstone Group, has made the way for the launch of the first real estate investment trust (REIT) on the Indian bourses. The development has a set a foresight of transparency, depth and liquidity for the commercial real estate bazaar in India. The increased competition and transparency that would arise with a dynamic REIT market, will lead to better maintenance and operation of the assets. With the commencement of REITs, the commercial sector could witness better capital appreciation, as compared to the residential sector. For developers, it could unravel the value of their commercial assets. They can look at REITs as a vehicle to exit, at an extremely attractive capitalisation rate, thus, reducing their high-level debts.
The introduction of REITs, also promotes professionalism all over the real estate value chain.
How these trends are benefiting real estate industry?
These factors have had a cumulative effect on the real-estate industry in India and drive the rise in demand for real-estate dealings and investments.
Increase in Real-Estate Sales & Launches
Post demonetization, real-estate project launches, and sales have grown expressively. One major shift in residential realty trends is the rise in demand for mid-segment and affordable housing, compared to luxury, high-end properties.
Other dynamics that drove real-estate sales in the last year include – availability of a wide range of flexible payment plans from NBFCs and digital lenders, which allows homebuyers to buy properties at lower EMI and interest rates, compared to traditional lenders; income tax rebates on home loans; CLSS; no floor rise cost; discounts and freebies offered by builders.
Innovations presented by Builders
The last few years have seen major innovations in the real-estate sector. With the introduction of various reforms, the real-estate industry saw the exit of less serious players, leaving the market to the professional builders.
Furthermore, builders have strived to innovate by offering homebuyers theme based projects like – comfort homes, senior homes, kid-centric homes, and more.
Buyers can choose from several themes to choose projects that are a perfect match for their lifestyles. Additionally, builders have incorporated technology and other amenities like smart lighting, 24 x 7 CCTV surveillance, power back-up, clubhouses, swimming pools, outdoor parks, and several other amenities to enhance the value proposition of their offerings.
The rise and demand for Harmonized Townships
With property prices touching sky at the cities and stagnant economic development breaks, more and more Indians are looking at Tier-II emerging cities. These cities not only present reasonable alternative to the metros but also have the infrastructure and other aspects working in their favour.
Due to the accessibility of huge land parcels at Tier-II emerging cities at affordable rates, developers can build high-quality residential homes and townships at economical prices, compared to cities.
Impact of RERA
With the arrival of RERA, real estate transactions between the developers and homebuyers have become reasonable. It has brought about more straightforwardness and accountability and has thus, made purchasing properties simpler than before.
All builders are obligatory to register their projects with RERA and provide what was promised in terms of the floor plan, quality, and other property aspects. Thus, builders also ask for dealers’ warranty, which force them to use high-quality building materials.
Emergence of stronger real estate market
Some promising changes have been witnessed in real estate sector of India. With new act and trends sector might lose its taint and will become more transparent.
And this in turn will protect the buyers from delayed constructions and handovers.
The demonetization was an important step which for sure has brought a major shake-up wherever a major role is played by black money. But over the next few years, the real estate market is going to emerge even stronger and it will be capable of continued growth.
Transparency in functioning of Real-Estate sector with GST
Developers had to pay non-creditable tax cost like excise duty, customs duty, CST, Entry tax which was eventually included in the price of units. With the constant and single tax rate, developers will have input credits on GST paid for services and goods bought by them which will lessen the cost for them and can be passed on to the buyers.
After the execution of GST, the government has not included the stamp duties under it.
There might not be any significant changes under GST in the overall tax rates but the elimination of the tax on tax will eventually bring down the final cost of construction. As an effect, it will help in lowering down the price of housing units which will ultimately improve the real estate sales. And this would be a positive impact of GST on real estate developers.
The real estate market has benefited from the above policy reform as discussed, as it has given buyers the assurance to invest their money safely in properties, which will last for generations.
What will be the future outlook?
“In the current market, commercial real estate – especially is definitely the best-performing real estate asset class. Thanks to the obligatory government’s upbeat initiatives such as PMAY, Make in India and the flourishing start-up culture in the country, demand and immersion for well-located commercial properties has been exceptionally high with rental yield going as high as 10 per cent in certain markets.
And precipitous pricing should be no dampener there. Investors who find ticket sizes of such properties too unreasonable can await the forthcoming announcement of India’s first REIT (real estate investment trust) listings. These will function like mutual funds for real estate and allow investors with budgets as low as Rs. 2 lakh to invest in this booming segment of real estate.
Demand in commercial sector will continue to beat supplies, leading to lesser vacancies and higher rental yields in 2019-20. Also, private equity contribution is quite high in commercial assets, which offers more shine to this space.
Reasonable and mid-income segments are likely to get top billing, with better sales in 2019 against the luxury category, as the government increases down on its housing for all promise.
To put it altogether, the real estate market has seen a significant rise in demand and shows optimistic investor sentiment.
Dealers and investors who were earlier undecided, are now actively looking for properties, as the overall real estate market in the country has seen an upward movement.
Developers have also experienced major transformations, and the leading and most reliable developers are looking to provide their valued clientele with further value and complete living experience.
Considering the various beneficial real estate trends listed above, experts are positive about the future of the real estate industry in the country and look forward to brighter days.