Looking at the state of Indian realty retrospectively
2018 was the year of reforms but will this lead to a new era of transparency and accountability for this sector?
There are years that ask questions and years that answer. 2017 introduced two catalysts of change RERA and GST and 2018 was about accepting the changes.
Speculative investors were kept out of the market, thanks primarily to demonetization that reduced the cash component in the market. All genuine buyers who had been pushed to the corner until now, took the centre stage. However real estate as a pure investment no longer seems attractive and other instruments such as mutual funds, stocks, fixed deposits have overtaken investor’s portfolio with real estate being relegated to a haven for the homebuyer, a safer one at that, now.
Ready-to-move-in options continue to find favour with the end user due to clear lack of buyers’ confidence in developers’ ability to finish projects on time. The projects finding takers are either ones nearing completion in the primary market or those up for resale in the secondary market.
Affordable and mid segment housing continue to be the flavour of the year. Affordable is so much the term in vogue that even premium developers are seen opening separate companies for affordable homes, and that which is luxury is also being sold as ‘ affordable luxury’. According to Prasoon Chauhan, CEO, HomeKraft, “Thesegment, which has seen maximum traction in 2018 is affordable andmidincome housing as there is massive demand-supply mismatch in this segment. Moreover, Indian government has been incentivising this segment by offering home loan interest subsidies and other benefits to ensure least interest burden on end-users and first time homebuyers.”
2018 was marked by a series of regulatory reforms and landmark legislations. For instance, the RBI hiked repo rates by 50 basis points during 2018 and GoI enhanced carpet area of MIG houses from120 to160 sq munder MIG-I and from 150 to 200 sq m under MIG-II category and. The Centre set up a dedicated affordable housing fundunderNHBfor priority lending, targeting to build 1 crore houses in rural areas underPMAYthisyear. But the most significant was the amendment to Insolvency and Bankruptcy Code (IBC) 2018 that treats the homebuyer at par with banks and other institutional creditors for recovering dues from realty firms that turned bankrupt. According to Injeti Srinivas, Secretary, Corporate Affairs Ministry, “By virtue of this new definition of homebuyer qualifying as a financial creditor, each and every homebuyer has the right to trigger the insolvency process in the event of a default. So if there are 10,000 homebuyerstoaproject, anyone of those ten thousand buyers can pull the company to the insolvency process. There is a sword hanging over the head of the builder and major threat that a builder faces that he can be brought into the insolvency process. I don’t think any bonafide builder will have that appetite to default.”
2018 was also the year when Court made an example of developers who failed to deliver on time on account of fund diversion. The Supreme Court’s stern warning to the homebuilder saying-’Don’t play smart or we will render you homeless’ did send out a strong message to defaulters. Recently, the top court slammed Amrapali for playing “fraud” and “dirty games” with the court and had ordered attachment of all bank accounts and movable properties of 40 firms of the group and entrusted State run developer NBCC with the task of completing the stranded projects. This was the year of setting right the mistakes done in the sector.
As for RERA, it is slowly but surely mopping up the sector even though for its full impact to be felt on the ground will take couple of years. Currently only three states have permanent RERA regulators and 15 states still don’t have a RERA website. North eastern states and West Bengal still don’t have a RERA authority. Still there has been progress with 28 States and Union Territories (UTs) having notified the Real Estate (Regulation and Development) Act, 2016 in the country. According to the Housing and Urban Affairs Ministry, 20 States and UTs have established real estate appellate tribunals under the legislation, of which, seven are “regular” tribunals while there are 13 “interim” real estate appellate tribunals. The coming of RERA has created a positive sentiment and real estate is a sentiment driven industry.
Talk about the biggest achievement of year 2018 and according to Dr Niranjan Hiranandani National President NAREDCO, “2018 saw morebuyers yoy than 2017 and that was the biggest achievement.” However he regrets that the 12% GST levied on under construction projects have led to the postponement of sales, until developer obtains occupation certificate. This has increased the pressure of project financing by the developers in already liquidity crisis market scenario and 70% funds blocked under escrow mechanism.
The one pain point in the current year has been the NBFC crisis in September which has exacerbated the liquidity crunch for the real estate sector. According to Shobhit Agarwal, MD & CEO - ANAROCK Capital, “NBFC loans to developers have seen a phenomenal rise since 2014, particularly due to the slowdown in bank loan disbursals. As per the current fiscal, NBFCs alone account for more than 50% of the total developer financing, which is somewhere close to INR 4 trillion in FY2018 as on date.”
What is the expectation from year 2019? Says Dr Hiranandani, “In 2019, we expect the positive impact of economic reforms to continue, to have enhanced ease of doing business, to see numbers of permissions and clearances rationalize, to have on-line permission set-up with timebound clearances – and of evolving to the status of an industry that is respected for the good work it does.”
In commercial and retail real estate, traditional physical formats of brick and mortar is giving way to think new strategies and raise the quality of experience. Co-working is the new office format that is trending. According to Nakul Mathur MD AvantaBusiness Centre-, “Looking at India, with 34% of the country’s population within the age bracket of 18–35 years, it is this demographic group, or Indian millennials that already are, and will continue to drive the consumption story across sectors, including real estate. Co working is the answer to millennials inherent need for mobility, connectivity and tech-enabled working spaces, plug and play and flexible office space.” Logistics and warehousing segment have registered growth on account of agrowingecommerce sector in the country.
2018 was also the year with far greater emphasis on green construction. According to Sanjay Seth, CEO, GRIHA Council and Senior Director, The Energy and Resources Institute (TERI) – “The number of buildings (mostly commercial) getting green rating has exactly doubled this year even though the green built environment is less than 3% in the country but still things are looking up.” He cites the example of Maharashtra PWD engineers who recently pledged to retrofit existing buildings across parameters of energy efficiency, water, waste, air quality, without asking for additional funds.” As Professor Helen Lochhead, Dean UNSW Build EnvironmentSydneysaysifpeople ask you what is the cost of going green, tell them that there is a long term cost of not going green.” Even the global community finds itself at a critical juncture today. Says Prof Lochhead, “It has been established that the built environment can contribute to a more equal, inclusive and cohesive society if the places where we live, the facilities we use, our neighbourhoods and meeting places are sustainable, inclusive, resource efficient and user-centric.”
Affordable and mid segment housing continue to be the flavour of the year