RE­AL­ITY CHECK

Realty Plus - - Cover Story -

The res­i­den­tial real es­tate sec­tor has been fac­ing head­winds for the past few years, pri­mar­ily due to weak de­mand. This is re­flected in de­clin­ing sales ve­loc­ity and sub­dued cash col­lec­tions (both in fis­cal 2016 and in the first half of fis­cal 2017), fewer project launches, and large un­sold in­ven­to­ries. De­mon­eti­sa­tion has fur­ther im­pacted de­mand, es­pe­cially in sec­ondary mar­ket trans­ac­tions and in mi­cro mar­kets with high in­vestor con­cen­tra­tion. De­mand re­mains muted as buy­ers adopt a ‘wait and watch’ mode.

De­vel­op­ers are likely to face fund­ing chal­lenges in the short-to-medium term, which could fur­ther de­lay on­go­ing projects. In ad­di­tion to high re­liance on non-bank fund­ing, de­vel­op­ers with a di­ver­si­fied port­fo­lio are fur­ther lever­ag­ing com­mer­cial as­sets and re­sort­ing to sale of as­sets to tide over funds crunch. Over the long term, how­ever, de­mon­eti­sa­tion, along with the im­ple­men­ta­tion of The Real Es­tate (Reg­u­la­tion and Devel­op­ment) Act, 2016, should im­prove trans­parency and sup­port the in­dus­try’s growth and end users’ con­fi­dence.

De­mand is ex­pected to re­main muted in the near term and re­cover grad­u­ally over the medium term, with sus­tained im­prove­ment in macroe­co­nomic con­di­tions. In the af­ford­able hous­ing seg­ment, de­mand is ex­pected to stay strong given the rel­a­tively low ticket sizes and im­pe­tus from the gov­ern­ment’s ‘Hous­ing for All’ pro­gramme.

The al­lo­ca­tion un­der the Prad­han Mantri Awas Yo­jana re­ceived a spe­cial al­lo­ca­tion of Rs 29,000 crore for fis­cal 2018, an in­crease of 38.7% over pre­vi­ous fis­cal.

In com­mer­cial real es­tate, va­can­cies have re­duced steadily on the back of in­creas­ing ab­sorp­tion over the last cou­ple of years and lim­ited ad­di­tional sup­plies. Rentals have also been ris­ing steadily. Oc­cu­pancy is ex­pected to stay healthy driven by im­prov­ing busi­ness con­di­tions.

The re­tail sec­tor con­tin­ues to wit­ness strong trac­tion given the healthy per­for­mance of large and es­tab­lished re­tail malls across the coun­try. Large for­eign in­sti­tu­tional in­vestors have been scout­ing for good prop­er­ties across met­ros, and large and small cities, given the strong growth po­ten­tial over the medium term.

Source: CRISIL Rat­ings Round-up Fis­cal 2017

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