How­pol­icy in­ter­ven­tions helped the re­sale prop­erty mar­ket

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

HT Estates - - FRONT PAGE - San­thosh Ku­mar let­ters@hin­dus­tan­ The au­thor is vice chair­man, ANAROCK Prop­erty Con­sul­tants

Theis­sue of trans­parency in sec­ondary­or­re­sale­realestate­trans­ac­tions hasin­deed­beenon­ev­ery­one’s minds ever since RERA stepped in to res­cue the pri­mary or­first sale-by-de­vel­op­er­mar­ket. The­ques­tion­that­loom­slargeis– have the gov­ern­ment’s moves to clean up the sec­tor ben­e­fited the re­sale (or sec­ondary sales) mar­ket as well?

Im­ple­men­ta­tion of poli­cies like de­mon­e­ti­za­tion, RERA, GST, REITs, the Be­namiTrans­ac­tions (Pro­hi­bi­tion) Amend­ment Act, 2016 and the Prad­han Mantri Awaas Yo­jana (PMAY), among oth­ers, have­brought­fresh­hope.

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. Thechron­icde­laysin­pro­ject ex­e­cu­tion of the past havesig­nif­i­cantly boosted buyer and in­vestor in­ter­est for ready-to-move-in prop­er­ties, notleast­o­fall­be­cause ready homes de­crease the com­bined pres­sure of monthly EMIs an­drental outgo for the com­mon man. Also, ready-to-move prop­er­ties do not at­tract GST.

Even­tu­ally, the de­mand for prop­er­ties in the sec­ondarysales mar­ket, in­clud­ing ready and al­most ready units – also in­creased. How­ever, hasthis seg­ment also ben­e­fited from the in­creased trans­parency an­d­ef­fi­cien­cyinthe­mar­ket? Thean­swer is – yes, it has, thoughthere­a­sons may not be im­me­di­ately ap­par­ent.

Soon­after the de­mon­e­ti­za­tion move in Novem­ber 2016, it was widelyan­tic­i­pat­edthatthe‘sur­gi­cal strike’ against black money would mas­sively dam­age the In­di­an­realestate sec­tor, par­tic­u­larly the sec­ondary mar­ket which was dom­i­nated by cash trans­ac­tions.

Ini­tially, de­mon­e­ti­za­tion did re­sult in re­duced sales in the sec­ondarysales seg­ment, with most in­vestors seek­ing to exit. Tem­pered­de­mand­com­pelledthemto re­ducethep­rices of their sec­ond­sale prop­er­ties by as much as 10-20% - par­tic­u­larly in NCR, which was largely in­vestor­driven. Ob­vi­ously, this gave an ad­van­tage­toend-users, as­spec­u­la­tive 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.


Al­most 20 months af­ter the al­most com­plete stand­still trig­gered­by­de­mon­e­ti­za­tion, its neg­a­tive ef­fects on­there­sale­mar­ket have ta­pered con­sid­er­ably. The data coming­in­has­de­bunkedthe gen­eral mis­con­cep­tion that de­mon­e­ti­za­tion has ter­mi­nally ru­ined the real es­tate sec­tor. Even more im­por­tantly, sales in the sec­ondaryreal es­tate mar­ket havepickedup­post­de­mon­e­ti­za­tion.

De­mon­e­ti­za­tion has re­sulted in in­creased trans­parency even inthesec­ondaryrealestate­trans­ac­tions, evenifRERA­did­nothelp it as much as it did the pri­mary sales seg­ment. Cash trans­ac­tions, which formed al­most 30-50% of the to­tal pay­mentsear­lier, have been se­ri­ously cur­tailed and­in­vestorsno­longersee any­point in hoard­ing prop­er­ties to use up their black money. The grad­u­alre­duc­tionofthep­rice­gap be­tween­thep­ri­ma­ryandthesec­ondary­mar­ketswasan­oth­ervis­i­ble pos­i­tive im­pact. Very im­por- tantly, 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 surgein­cap­i­tal­gain­staxrev­enue has added hand­somely to the gov­ern­ment cof­fers).

Con­trary to all doom-and­gloom pre­dic­tions, de­mon­e­ti­za­tion hasha­dav­ery­pos­i­tive­ef­fect on the sec­ondary sales mar­ket. More­over, even RERA has had helped this seg­ment, al­beit more in­di­rectly.

Af­ter RERA was un­leashed, devel­op­ers in the mar­ket­sun­der its purview rushed to regis­ter their projects or ob­tain com­ple­tion cer­tifi­cates for projects that were­n­ear­ing­com­ple­tion. Re­sale mar­ket buy­ers ben­e­fit­ted as there was a surge in ready-to­move-in prop­er­ties both for sale an­drentinthis seg­ment. In NCR, this was es­pe­cially ev­i­dent in mar­ketssuchasNewGu­ru­gram, 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 ex­empt­fromit. This­con­sid­er­ably re­duced the de­mand for un­der­con­struc­tion prop­er­ties by buy­ers, and in­creased de­mand for ready-to-move prop­er­ties - in both­thep­ri­ma­ryandthesec­ondary sales mar­kets.

There has been al­most 10-12% in­crease in the num­berof­buy­ers in the sec­ondaryreal es­tate since de­mon­e­ti­za­tion - more so with in­creased de­mand for ready-to­move-in­prop­er­ties. Gen­uineen­duser­snow­prefer­to­buy­whatthey see.

The con­fu­sion un­der the new reg­u­la­tory en­vi­ron­ment in the In­dian real es­tate kept a large num­ber of buy­ers away from in­vest­ing in the­p­rop­er­ty­mar­ket. In or­der to swiftly exit from the prop­erty mar­ket, mostin­vestors re­duced the prices of their prop­er­ties over the last few years. This, in fact, re­sulted in lower prop­erty val­ues in the sec­ondary mar­ket­byas­muchas5-10% from the pri­ma­ry­mar­ket­in­manypro­jects. In the cur­rent sce­nario, buy­ers are at a ma­jor ad­van­tage in the sec­ondary mar­ket – firstly be­cause they cansee the prod­uct and its qual­ity first-hand, and sec­ondly be­cause they get bet­ter pricin­gop­tion. Forde­vel­op­ers, on theother­hand, find­ing­buy­ers­for 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.


Th­esec­ondaryrealestatemar­ket will gain­more­mo­men­tu­masand when­theRERAat­tain­scom­plete im­ple­men­ta­tion­cov­er­ageacross all states. How­ever, even now RERAan­dother­per­ti­nent­pol­icy re­formshaveopened­sev­er­al­new av­enues­for growthintheIn­dian 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 grow­ing­mul­ti­fold - 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 de­mand­fur­ther­im­prove­mentsin 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 which­track­build­ings at ev­erys­ta­ge­of­con­struc­tio­nand af­ter com­ple­tion will grow. Like­wise, dig­i­tal records of real es­tate oc­cu­piers, in­vest­ment flows, prop­erty val­ues and yields will ex­pand rapidly.

In other words, the coun­try’s real es­tate mar­ket is ma­tur­ing – and it’s not just pri­mary sales whichare­be­com­ing­more­trans­parentasare­sult. Th­esec­ondary sales mar­ket is a di­rect and in­di­rect ben­e­fi­ciary of all these mea­sures to make In­dia’s prop­erty in­dus­try a more whole­some, trans­par­ent and uni­lat­er­ally ben­e­fi­cial one.

De­mon­e­ti­za­tion did re­sult in re­duced sales in the sec­ondary sales seg­ment

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