How pol­icy in­ter­ven­tions helped re­sale prop­erty mar­ket

The num­ber of buy­ers in the sec­ondary real es­tate mar­ket has in­creased by 10­12% since de­mon­e­ti­za­tion

Hindustan Times (Chandigarh) - Estates - - FRONT PAGE - San­thosh Ku­mar let­ters@hin­dus­tan­

The is­sue of trans­parency in sec­ondary or re­sale real es­tate trans­ac­tions has in­deed been on ev­ery­one’s minds ever since RERA stepped in to res­cue the pri­mary or first sale-by-de­vel­oper mar­ket. The ques­tion that looms large is – have the gov­ern­ment’s moves to clean up the sec­tor ben­e­fited the re­sale (or sec­ondary sales) mar­ket as well?

Over­all, the cen­tral gov­ern­ment has put in tremen­dous ef­forts to­wards cre­at­ing a health­ier and reg­u­lated real es­tate mar­ket en­vi­ron­ment. Im­ple­men­ta­tion of poli­cies like de­mon­e­ti­za­tion, RERA, GST, REITs, the Be­nami Trans­ac­tions (Pro­hi­bi­tion) Amend­ment Act, 2016 and the Prad­han Mantri Awaas Yo­jana (PMAY), among oth­ers, have brought fresh hope.

At the same time, the In­dian real es­tate mar­ket has also wit­nessed other in­ter­est­ing new trends - a prom­i­nent one be­ing the in­creased de­mand for readyto-move-in prop­er­ties. Var­i­ous fac­tors were re­spon­si­ble for this rise. The chronic de­lays in project ex­e­cu­tion of the past have sig­nif­i­cantly boosted buyer and in­vestor in­ter­est for readyto-move-in prop­er­ties, not least of all be­cause ready homes de­crease the com­bined pres­sure of monthly EMIs and rental out go for the com­mon man. Also, ready-to-move prop­er­ties do not at­tract GST.

Even­tu­ally, the de­mand for prop­er­ties in the sec­ondary sales mar­ket, in­clud­ing ready and al­most ready units – also in­creased. How­ever, has this seg­ment also ben­e­fited from the in­creased trans­parency and ef­fi­ciency in the mar­ket? The an­swer is – yes, it has, though the rea­sons may not be im­me­di­ately ap­par­ent.


Soon af­ter the de­mon­e­ti­za­tion move in Novem­ber 2016, it was widely an­tic­i­pated that the ‘sur­gi­cal strike’ against black money would mas­sively dam­age the In­dian real es­tate sec­tor, par­tic­u­larly the sec­ondary mar­ket which was dom­i­nated by cash trans­ac­tions.

Ini­tially, de­mon­e­ti­za­tion did re­sult in re­duced sales in the sec­ondary sales seg­ment, with most in­vestors seek­ing to exit. Tem­pered de­mand com­pelled them to re­duce the prices of their sec­ond­sale prop­er­ties by as much as 10-20% - par­tic­u­larly in NCR, which was largely in­vestor­driven. Ob­vi­ously, this gave an ad­van­tage to end-users, as spec­u­la­tive pric­ing had kept them away from the prop­erty mar­ket. Un­like ear­lier, in­vestors have now be­come more ‘re­al­is­tic’ in their ex­pec­ta­tions of re­turns on their in­vest­ments.

In­ter­est­ingly, if we look at the more de­vel­oped na­tions, a price ap­pre­ci­a­tion to the tune of 8-10% y-o-y is con­sid­ered a re­al­is­tic ex­pec­ta­tion for a prop­erty in­vest­ment. In In­dia, it was as high as 200% in cer­tain mar­kets. This ex­pec­ta­tion sim­ply had to de­flate – and it cer­tainly has de­flated.


Al­most 20 months af­ter the al­most com­plete stand­still trig­gered by de­mon­e­ti­za­tion, its neg­a­tive ef­fects on the re­sale mar­ket have ta­pered con­sid­er­ably. The data com­ing in has de­bunked the gen­eral mis­con­cep­tion that de­mon­e­ti­za­tion has ter­mi­nally ru­ined the real es­tate sec­tor. Even more im­por­tantly, sales in the sec­ondary real es­tate mar­ket have picked up post de­mon­e­ti­za­tion.

De­mon­e­ti­za­tion has re­sulted in in­creased trans­parency even in the sec­ondary real es­tate trans­ac­tions, even if RERA did not help it as much as it did the pri­mary sales seg­ment. Cash trans­ac­tions, which formed al­most 30-50% of the to­tal pay­ments ear­lier, have been se­ri­ously cur­tailed and in­vestors no longer see any point in hoard­ing prop­er­ties to use up their black money. The grad­ual re­duc­tion of the price gap be­tween the pri­mary and the sec­ondary mar­kets was an­other vis­i­ble pos­i­tive im­pact. Very im­por­tantly, de­mon­e­ti­za­tion has cre­ated ac­tual fear among buy­ers who might have thought of cash deals pre­vi­ously. While do­ing trans­ac­tions in the sec­ondary mar­ket post de­mon­e­ti­za­tion, most buy­ers are ready to pay more cap­i­tal gains tax – in stark con­trast to ear­lier times when they would try to shrink their ex­po­sure to this tax. (Of course, this surge in cap­i­tal gains tax rev­enue has added hand­somely to the gov­ern­ment cof­fers).

Con­trary to all doom-and- gloom pre­dic­tions, de­mon­e­ti­za­tion has had a very pos­i­tive ef­fect on the sec­ondary sales mar­ket. More­over, even RERA has had helped this seg­ment, al­beit more in­di­rectly.

Af­ter RERA was un­leashed, de­vel­op­ers in the mar­kets un­der its purview rushed to reg­is­ter their projects or ob­tain com­ple­tion cer­tifi­cates for projects that were near­ing com­ple­tion. Re­sale mar­ket buy­ers ben­e­fit­ted as there was a surge in ready-to­move-in prop­er­ties both for sale and rent in this seg­ment. In NCR, this was es­pe­cially ev­i­dent in mar­kets such as New Guru gram, Noida Ex­press­way and Dwarka Ex­press­way, where in­vestors were hold­ing on to a mas­sive share of the ex­ist­ing hous­ing in­ven­tory in an­tic­i­pa­tion of a profit wind­fall.

Also, the Goods and Ser­vices Tax (GST) im­ple­mented in July 2017 only ap­plies to un­der-con­struc­tion prop­er­ties. Ready-to­move-in homes and land are ex­empt from it. This con­sid­er­ably re­duced the de­mand for un­der-con­struc­tion prop­er­ties by buy­ers, and in­creased de­mand for ready-to-move prop­er­ties - in both the pri­mary and the sec­ondary sales mar­kets.

There has been al­most 10-12% in­crea­sein the num­ber of buy­ers in the sec­ondary real es­tate since de­mon­e­ti­za­tion - more so with in­creased de­mand for ready-to­move-in prop­er­ties. Gen­uine end-users now pre­fer to buy what they see.

The con­fu­sion un­der the new reg­u­la­tory en­vi­ron­ment in the In­dian real es­tate kept a large num­ber of buy­ers away from in­vest­ing in the prop­erty mar­ket. In or­der to swiftly exit from the prop­erty mar­ket, most in­vestors re­duced the prices of their prop­er­ties over the last few years. This, in fact, re­sulted in lower prop­erty val­ues in the sec­ondary mar­ket by as much as 5-10% from the pri­mary mar­ket in many projects.

Not sur­pris­ing, since in the past, a com­par­i­son of unit prices within a par­tic­u­lar project showed that the de­vel­oper’s price for ready-to-move-in op­tions was lower than those quoted by in­vestors look­ing to re-sell their units. Re-sellers look­ing to off­load their hold­ings had no op­tion but to re­lent to the pric­ing pres­sures.

In the cur­rent sce­nario, buy­ers are at a ma­jor ad­van­tage in the sec­ondary mar­ket – firstly be­cause they can see the prod­uct and its qual­ity first-hand, and se­condly be­cause they get bet­ter pric­ing op­tion. For de­vel­op­ers, on the other hand, find­ing buy­ers for their ready-to-move-in prop­er­ties in the pri­mary mar­ket has be­come a ma­jor chal­lenge as their prices are slightly higher than those quoted by in­vestors look­ing to sell their prop­er­ties within the same project. Most buy­ers are tempted to buy in the re­sale mar­ket as re-sellers, in a hurry to exit, are will­ing to re­duce their prices.


The sec­ondary real es­tate mar­ket will gain more mo­men­tum as and when the R ERA at­tains com­plete im­ple­men­ta­tion cov­er­age across all states. How­ever, even now RERA and other per­ti­nent pol­icy re­forms have opened sev­eral new av­enues for growth in the In­dian real es­tate sec­tor, not least of all by boost­ing the con­fi­dence of in­sti­tu­tional pri­vate eq­uity in­vestors. In fact, In­dian real es­tate’s at­trac­tive­ness to in­sti­tu­tional in­vestors is grow­ing multi-fold - pri­vate eq­uity in­flows into In­dian real es­tate just rose by al­most 15% over last year’s $2.5 bil­lion in the first quar­ter of 2018 it­self.

As cap­i­tal al­lo­ca­tions to real es­tate grow, in­vestors will de­mand fur­ther im­prove­ments in trans­parency, and tech­nol­ogy must en­able far more gran­u­lar as­sess­ment of the coun­try’s real es­tate mar­ket pat­terns. En­cour­ag­ingly, there is vis­i­ble progress on this front.

Un­der the gov­ern­ment’s dig­i­tal In­dia pro­gramme, data­bases which track build­ings at ev­ery stage of con­struc­tion and af­ter com­ple­tion will grow. Like­wise, dig­i­tal records of real es­tate oc­cu­piers, in­vest­ment flows, prop­erty val­ues and yields will ex­pand rapidly. Ev­ery in­dus­try stake­holder will have ac­cess to in­creas­ingly gran­u­lar and per­ti­nent in­for­ma­tion.

In other words, the coun­try’s real es­tate mar­ket is ma­tur­ing – and it’s not just pri­mary sales which are be­com­ing more trans­par­ent as a re­sult. The sec­ondary sales mar­ket is a di­rect and in­di­rect ben­e­fi­ciary of all these mea­sures to make In­dia’ s prop­erty in­dus­try a more whole some, trans­par­ent and uni­lat­er­ally ben­e­fi­cial one.

The au­thor is vice chair­man, ANAROCK Prop­erty Con­sul­tants


De­mon­e­ti­za­tion did re­sult in re­duced sales in the sec­ondary sales seg­ment

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