2017: Tough for realtors, mixed bag for buyers
The aftermath of demonetisation and implementation of Real Estate (Regulation and Development) Act or Rera and goods and services tax (GST) turned 2017 into one of the worst years for developers and a mixed bag for homebuyers.
While demonetisation, announced in late 2016, hit the sale of luxury apartments, unorganised players and NCR in particular, where the cash component was high, Rera and GST have increased the cost of business for developers. Developers had to increase compliance under Rera. Presales, which were their primary source of funding for initial stages of construction, were banned and they have to keep 70 per cent of project proceeds in an escrow account.
“If anything, 2017 will go down in history as one of the most difficult years for residential developers, who faced several challenges ranging from realigning their businesses to comply with the GST roll-out to changing business models in the wake of Rera — and then, post-demonetisation, investors disappearing from the market. Though demand in end user-driven markets was not affected as much. the more speculative markets saw buying activity reducing to a trickle - more so in the luxury segment," said Ramesh Nair, CEO at JLL India. But the changes have fast-tracked the consolidation and is being reflected in the sales and financial highlights of reputable developers with every passing quarter, says Amit Bhagat, chief executive at ASK Property Investment Advisors.
"Rera was finally implemented with clear guidelines for compliance and financial management to ensure funds are utilised for timely completion of the project with delivery matching the committed project/product specifications. This was the strength of the reputable developers who were customer-centric and financially disciplined,” Bhagat said.
Developers agree. “Rera will hasten the consolidation but it will be an opportunity for what we have been doing, to do it with better scale and efficiency,” said Pirojsha Godrej, chairman at Godrej Properties, in a recent interview with Business Standard. Bhagat said the residential sector would see further consolidation and winners would be customer-centric players with in-house execution abilities.