Re­flec­tions 2017 & Re­view 2018

The year 2017 will go down in the his­tory of In­dian real-es­tate as the year that changed the sec­tor for­ever. Realty Plus brings a year-end anal­y­sis and views and opin­ions of the sec­tor lead­ers.

Realty Plus - - Table Of Content -

Never in the his­tory of In­dian real es­tate have so many ma­jor events taken place within such a short pe­riod of time. In­dian real es­tate has wit­nessed a ‘sys­tems re-boot’ – be­gin­ning with de­mon­e­ti­za­tion, the leg­is­la­tion on Be­nami prop­er­ties, RERA, GST fol­lowed by the amend­ment to the Bank­ruptcy and In­sol­vency Code. Ad­di­tion­ally, the Union Bud­get for 2017-18 pro­vided af­ford­able hous­ing with in­fra­struc­ture sta­tus and the Prad­han Mantri Awaas Yo­jana (PMAY) of­fers in­ter­est subvention schemes to in­cen­tivize af­ford­able hous­ing seg­ment. “Un­der the PMAY (Prime Min­is­ter Awas Yo­jna), the ear­lier MIG-1 car­pet area of 90 sqm has been in­creased to 120 sqm and the ear­lier MIG-2 car­pet area of 110 sqm has been in­creased to 150 sqm. So the hous­ing un­der the above cat­e­gories shall avail the ben­e­fits, sub­si­dies and loans of the PMAY which is ex­pected to give a big boost for the real-es­tate mar­ket in the com­ing year 2018,” said Parveen Jain, Vice Chair­man NAREDCO and CMD, Tulip In­frat­ech Pvt Ltd. Cer­tainly, In­dian real es­tate mar­ket is ag­i­tat­ing for a bet­ter to­mor­row.

The reg­u­la­tions im­ple­mented are strin­gent but were need of the hour. Over a pe­riod of time, they will act as cat­a­lyst in speed­ing up the realty growth. It is ac­counted that at least a time span of two quar­ters is re­quired for the af­ter­math to bear its ac­tions. Amar­jit Bak­shi, Man­ag­ing Di­rec­tor, Cen­tral Park ex­plained, “The growth of real-es­tate sec­tor re­mained muted for large part of the year es­pe­cially after the in­tro­duc­tion of reg­u­la­tory mea­sures. Home buy­ers adopted a wait and watch ap­proach in anticipation of prop­erty prices to be re­duced while oth­ers con­sid­ered whether to go for an un­der-con­struc­tion or ready to move in prop­erty. While the pre­mium prop­er­ties up­take has re­mained at the same level, the mid and as­pir­ing hous­ing seg­ment has taken a blow with cor­rec­tion in prop­erty prices. The grow­ing un­sold in­ven­tory is re­sult­ing into de­vel­op­ers re­sort­ing to re­duce prop­erty prices fur­ther. From a mar­kets per­spec­tive, many in­vestors are ac­tively con­sid­er­ing ad­join­ing ar­eas of es­tab­lished res­i­den­tial and com­mer­cial cen­tres for in­vest­ments due to fac­tors such as af­ford­abil­ity and rapid in­fra­struc­ture devel­op­ment, for e.g. Sohna be­ing pre­ferred over Gu­ru­gram.”

THE SALES & MAR­KET­ING

The year started with spec­u­la­tion of prices cor­rect­ing by cor­rect 30% to 40% across the coun­try. This as ex­pected put a stop on new sales. The gov­ern­ment how­ever did try to pro­mote the real-es­tate sec­tor by loos­en­ing some of the con­di­tions around the tax-free scheme for af­ford­able hous­ing. This along with the in­clu­sion of mid­dle in­come group into the cat­e­gory of peo­ple who can avail of the in­ter­est sub­sidy from the gov­ern­ment pushed de­vel­op­ers to re­con­fig­ure their prod­uct mix to­wards more af­ford­able hous­ing. As a re­sult, the av­er­age size of homes launched has dropped dras­ti­cally. As per PWC re­port on Key Tax Is­sues at Year End for Real Es­tate In­vestors 2017/2018 for In­dia, while op­ti­cally the tax rate may ap­pear to be higher, in­creased avail­abil­ity of cred­its to real-es­tate de­vel­op­ers should lead to re­duc­tion in prices in the long run. Fur­ther, GST has also in­tro­duced anti-prof­i­teer­ing pro­vi­sions, man­dat­ing the busi­nesses to pass on the ben­e­fit of re­duced tax in­ci­dence on goods or ser­vices to the con­sumers. This would in turn en­sure re­duc­tion in prices for the con­sumers.

While In­dia has im­proved on the ease of do­ing busi­ness rank­ings put out by the World Bank, the one stub­born cat­e­gory that barely moved was the ease of deal­ing with con­struc­tion per­mits where the move­ment was from the rank of 185 to 181. “For the real-es­tate sec­tor to ac­tu­ally start see­ing a good mo­men­tum of sales (which is nec­es­sary to raise the over­all GDP of the coun­try) there needs to be a sta­ble tax struc­ture and tax regime. The cur­rent chat­ter around tax­ing the un­sold ready in­ven­tory with de­vel­op­ers fur­ther leads to in­sta­bil­ity in the mind of the home buy­ers. This causes fur­ther de­fer­ment of the de­ci­sion to buy a home. This is detri­men­tal to the in­dus­try and the econ­omy,” ex­pressed Ro­hit gera, vp credai Pune Metro and Man­ag­ing Di­rec­tor, gera De­vel­op­ments Pvt. ltd. Con­sid­er­ing the pric­ing dif­fer­ence in the sec­tor, a ma­jor fall in prices was ob­served across the cities like Delhi, Mum­bai and Chen­nai. But the after ef­fects over the year are on a pos­i­tive end. De­vel­op­ers and buy­ers both have up­lifted their game; buy­ers have be­come more in­trepid with more trans­parency and op­por­tu­nity in the mar­ket and the de­vel­op­ers have ob­served a more smooth and reg­u­la­tory busi­ness process. Manju yag­nik, vice-chair­per­son of Na­har group is of the view that prop­erty rates still stand in­de­pen­dent of rad­i­cal pol­icy re­forms and may wit­ness some al­ter­ation in long term hori­zon. ”As de­vel­op­ers have re­sponded well to GST ad RERA, they will try cer­tainly not to pass on any ex­tra cost bur­den to the end user. To­day’s mar­ket is very much sta­ble for buy­ers, op­tions are avail­able, mak­ing it a good time to in­vest in a house. Also the re­cent move of link­ing the Ad­haar with all the prop­erty trans­ac­tions and en­hance­ment in car­pet area, MHADA houses are all pos­i­tive steps taken for the growth of the in­dus­try which is ben­e­fit­ting buy­ers and de­vel­op­ers too.” For fund­ing, the in­dus­try con­tin­ued to en­gage in pri­mary sources i.e. bank loans, in­sti­tu­tional in­vestors and in­ter­nal ac­cru­als. Of late, the in­dus­try has seen Joint Ven­ture (JV) be­tween de­vel­op­ers for projects where fi­nance com­po­nent is brought in by an­other part­ner. Talk­ing about the newer fund­ing op­tions, ash­win sheth- chair­man and Man­ag­ing Di­rec­tor, sheth group stated, “The Se­cu­ri­ties and Ex­change Board of In­dia (SEBI) has given its ap­proval for the Real Es­tate In­vest­ment Trust (REIT) plat­form which will al­low in­vestors to in­vest in the In­dian realty in­dus­try. This would help in­crease the cash flow in the sec­tor and cre­ate op­por­tu­ni­ties worth bil­lions over the years. More­over, the liber­iza­tion of the FDI norms will fur­ther im­prove the cash flow into the sec­tor and pro­mote a ro­bust en­vi­ron­ment.”

THE PER­FOR­MANCE IN 2017

This was truly a year for real es­tate that was favourable as also chal­leng­ing. The pro­gres­sive pol­icy re­forms and tax amend­ments, in­fra­struc­ture sta­tus grant to af­ford­able hous­ing seg­ment, RERA, GST, RBI Pol­icy and REITS in­tro­duc­tion has had a cu­mu­la­tive ef­fect on trans­form­ing the fab­ric of the mar­ket. shishir bai­jal, chair­man and Man­ag­ing Di­rec­tor, Knight frank in­dia Pvt. ltd briefed, “The test­ing times fac­ing the real es­tate sec­tor in wake of the re­forms-driven new or­der has been much de­bated this year. New res­i­den­tial projects dried up as de­vel­op­ers’ fo­cus shifted to­wards be­com­ing com­pli­ant to the new or­der. Sim­i­larly a slow­down hit home sales as buy­ers turned wary. The next 12 to 18 months are likely to be the ‘un­der ob­ser­va­tion’ pe­riod for the real-es­tate sec­tor. In­dus­try stake­hold­ers should spend the pe­riod in re­ori­ent­ing busi­nesses in line with the new or­der. We are also hope­ful that In­dia’s strong eco­nomic fun­da­men­tals still puts it among the fastest grow­ing economies in the world.” In line to boost the realty sec­tor, the gov­ern­ment re­duced the hold­ing pe­riod for com­put­ing long-term cap­i­tal gains from trans­fer of im­mov­able prop­erty from 3 years to 2 years. The gov­ern­ment also paved the way for ease of do­ing busi­ness by an­nounc­ing that con­struc­tion per­mits would be is­sued in 60 days. Ac­cord­ing to a re­cent JLL re­port, 50% of in­ven­tory of RERA regis­tered projects has been sold. Ad­di­tion­ally, the RBI re­duced the in­ter­est rates to 6% mak­ing it the low­est. This will surge de­mand in the hous­ing sec­tor with fence-sit­ting buy­ers fi­nally mak­ing the plunge and buy­ing homes.

Giv­ing a com­pre­hen­sive view sushil Raheja - ceo, Raheja Homes Builders & De­vel­op­ers stated, “Lux­ury projects saw a de­cline in de­mand and sales but af­ford­able hous­ing is set to mark its suc­cess in the mar­ket. Onecrore houses are ex­pected to be built by 2019 in ru­ral ar­eas, which will al­low cheaper sources of fi­nance and ex­ter­nal com­mer­cial bor­row­ings. The ex­pec­ta­tions are not com­pletely matched as it is too soon to de­clare; by the 2nd quar­ter of 2018 sub­stan­tial af­ter­math can be done. Year 2018 will show as­cen­dancy in the real es­tate sec­tor; all the pol­icy re­forms and struc­tural mod­i­fi­ca­tions will man­i­fest its prof­its and gain in this year.” De­mon­e­ti­za­tion squeezed liq­uid­ity out of de­vel­op­ers, forc­ing them to change their busi­ness mod­els. For in­stance, de­vel­op­ers now pre­fer to en­ter into joint devel­op­ment agree­ment with land own­ers over out­right pur­chase of land. The pos­i­tive im­pact of de­mon­eti­sa­tion from a home buyer’s point of view is a fall in home loan rates and home prices. Land prices are how­ever ex­pected to re­main the same. The other pos­i­tive ef­fect of this re­form mea­sure is an in­crease in reg­u­la­tion and tax com­pli­ance, though how much of this would trans­late into an in­crease in tax col­lec­tion will have to be seen. In the res­i­den­tial seg­ment, the sup­ply of new homes was low, which is per­haps good as it will bal­ance out the high lev­els of un­sold in­ven­tory in ma­jor cities. Home sales will con­tinue to be weak. Prop­erty prices will also be un­der pres­sure in re­gions such as NCR and Mum­bai, which have high un­sold in­ven­tory, more so in the lux­ury hous­ing seg­ment. Real Es­tate In­vest­ment Trusts, which were much awaited in 2017, did not take off dur­ing the year be­cause of con­fu­sion over GST and other reg­u­la­tory mat­ters. The ex­perts ex­pect the first REIT list­ing to hap­pen some­time in late 2018 or early 2019.

In the of­fice space, strong eco­nomic growth con­tin­ued to gen­er­ate de­mand. Va­cancy lev­els in some cities such as Bengaluru, Chen­nai, Hyderabad and Pune is around 5-10%, while pan In­dia va­cancy is at

around 14-15%. On the sup­ply side, there is a short­age of grade A of­fice space and this gap is keep­ing of­fice rentals strong. In com­par­i­son, re­tail prop­er­ties saw sig­nif­i­cantly less rental value ap­pre­ci­a­tion, es­pe­cially in the Na­tional Cap­i­tal Re­gion. Mum­bai and Bengaluru fared bet­ter. sachin sand­hir, global Man­ag­ing Di­rec­tor – emerg­ing busi­ness, Rics added, “The year saw In­dia’s courts come to the res­cue of dis­traught home buy­ers in mul­ti­ple cases filed against de­vel­op­ers. Or­gan­ised real es­tate de­vel­op­ers, with ac­cess to in­sti­tu­tional fund­ing will find it eas­ier to com­ply with RERA which has in­creased both the com­pli­ance level and cost for de­vel­op­ers. De­mand for lux­ury homes has taken a hit, while af­ford­able homes con­tinue to at­tract buy­ers. It is dif­fi­cult to quan­tify the ex­act im­pact of GST on prop­erty prices. While de­vel­op­ers will be able to avail in­put credit on goods and ser­vices bought and used dur­ing the con­struc­tion process it is yet to be seen if they will pass this ben­e­fit to home buy­ers. The new tax regime is ex­pected to keep real es­tate costs low for the af­ford­able hous­ing seg­ment, thereby mak­ing it cheaper.”

THE GROWTH PROSPECTS IN 2018

Due to ma­jor pol­icy over­haul in­duced, it will take a few more months for the real es­tate sec­tor to come out of the after-ef­fects of the pol­icy changes. How­ever, the mea­sures im­ple­mented will prove ben­e­fi­cial in the long run and will trans­late into a win-win sit­u­a­tion for both con­sumers and de­vel­op­ers. Con­sumers will be more con­fi­dent while mak­ing their in­vest­ment de­ci­sions lead­ing to in­creased sales in the sec­tor. The mar­ket will be a lot less mud­dled as only es­tab­lished play­ers will ex­ist in the busi­ness and con­sol­i­da­tion is ex­pected to take place. This will lead to more in­vest­ments in the sec­tor by in­sti­tu­tional in­vestors. In the mean­time, the de­vel­op­ers need to be more re­silient and sup­port gov­ern­men­tal mea­sures in tan­dem to put forth a more re­spon­si­ble and pro­gres­sive im­age of the real es­tate mar­ket. Also, af­ford­able hous­ing will be a buzz­word in the sec­tor in 2018 due to Gov­ern­ment’s fo­cus on ‘Hous­ing for All by 2022’ and is a good op­por­tu­nity for de­vel­op­ers to cap­i­tal­ize on. In 2018, the de­mand for of­fice space is ex­pected to re­main strong. Of­fice rentals in the cities of Na­tional Cap­i­tal Re­gion, Mum­bai and Bengaluru will con­tinue to out­per­form thanks to strong de­mand from of­fice space oc­cu­piers. Re­tail seg­ment will main­tain its sta­tus quo. In the home loan mort­gage busi­ness, we ex­pect newer play­ers to give tough com­pe­ti­tion to older and more es­tab­lished play­ers. To sum it up, 2018 will con­tinue to pose some chal­lenges for the res­i­den­tial seg­ment as far as home sales and prices are con­cerned. Com­pli­ance could be a prob­lem for some de­vel­op­ers, re­sult­ing in con­sol­i­da­tion in the sec­tor. Home buy­ers will emerge as the ul­ti­mate win­ners with RERA act­ing as a panacea to most of their home buy­ing woes. More­over, en­cour­ag­ing for­eign and do­mes­tic in­vestors by im­ple­ment­ing pro­gres­sive pol­icy re­forms will con­trib­ute in chang­ing the busi­ness pro­cesses of the sec­tor. Giv­ing his pre­dic­tion for the next year, Dr Niranjan hiranandani, Na­tional Pres­i­dent, NAREDCO & CMD, hiranandani com­mu­ni­ties said, “Look­ing into 2018 and the fu­ture, ra­tio­nal­iza­tion of tax as

a re­sult of the move to cover real es­tate fully un­der GST, and pro­vid­ing a boost for rental hous­ing are the two key driv­ers to look for­ward to. Then, adopt­ing global best prac­tices seems to be the apt way of work­ing to­wards a bet­ter next year, and In­dian real es­tate largely, has adopted this route through 2017, go­ing into 2018. In the new post-rera and GST reg­u­la­tory regime, real es­tate and the In­dian econ­omy re­quire proper work­ing method­ol­ogy, one that is trans­par­ent and in­cludes ac­count­abil­ity – which will en­sure trans­parency and ac­count­abil­ity. Given this, 2018 should be a year that brings sus­tain­able growth to In­dian real es­tate.” Real es­tate de­vel­op­ers are un­likely to for­get 2017, which was like a bad dream come true, and look for­ward to bet­ter busi­ness in 2018. The cur­rent buyer sen­ti­ment is of wait and watch be­fore tak­ing a plunge into buy­ing high end and mid seg­ment hous­ing due to changes tak­ing place be­cause of GST and RERA. Also these changes are to­tally new and buy­ers will take some time to grasp and get used to them. shailesh Pu­ranik, MD, Pu­ranik builders Pvt. ltd added, “For the In­dian real es­tate sec­tor, 2017 is marked as a year with high­lights and chal­lenges with var­i­ous news and pol­icy changes. Re­forms like RERA, REIT, GST, De­mon­eti­sa­tion have re­sulted in cre­at­ing trans­parency in the real-es­tate sec­tor which in turn has helped in im­prov­ing the per­cep­tion of in­vestors and fi­nan­cial and thus will pro­vide de­vel­op­ers cap­i­tal and cash flow for com­ple­tion of the project with the stip­u­lated time.” Also, due to de­mon­e­ti­za­tion the fund flow in banks is in­creas­ing tremen­dously which is go­ing to have a pos­i­tive ef­fect as far as banks giv­ing hous­ing loans are con­cerned. It is ex­pected that the bank hous­ing loans’ in­ter­est rates may fur­ther fall prov­ing ben­e­fi­cial for the buy­ers and shall in­cul­cate more in­ter­est in pur­chas­ing prop­erty. R K arora, chair­man, su­pertech lim­ited added, ““The gov­ern­ment an­nounced Credit Linked Sub­sidy Scheme (CLSS) dur­ing the year, has made loans avail­abil­ity at much af­ford­able rates, thereby ben­e­fit­ing both buy­ers and de­vel­op­ers com­mu­nity. Un­der the scheme, in­ter­est sub­sidy is cred­ited up­front to the loan ac­count of ben­e­fi­cia­ries through lend­ing In­sti­tu­tions re­sult­ing in re­duced ef­fec­tive hous­ing loan and equated monthly in­stal­ments”. For sure, home buyer con­fi­dence is re­viv­ing, and more fence­sit­ters will spring into ac­tion in 2018. Over­all, the com­ing year of mar­ket re­cov­ery will be de­fined by re­stricted new launches, grad­u­ally im­prov­ing sales and de­clin­ing un­sold units. A no­table phe­nom­e­non in 2018 will be a large-scale con­sol­i­da­tion of de­vel­op­ers and bro­kers and dis­tressed as­sets chang­ing hands. “We may not see a scin­til­lat­ing res­i­den­tial mar­ket re­cov­ery in 2018, but it is cer­tain that what­ever re­cov­ery and growth we see from here on­ward will be sus­tain­able and backed by stronger mar­ket fun­da­men­tals than ever be­fore. The days of spec­u­la­tive peaks and troughs are safely be­hind us,” proph­e­sized anuj Puri, chair­man – anarock Prop­erty con­sul­tants The up­com­ing year will be the year of con­sol­i­da­tion in the in­dus­try, where de­vel­op­ers with deep pock­ets, com­mit­ment to cor­po­rate gov­er­nance and trans­parency will sus­tain their op­er­a­tions while non-se­ri­ous play­ers will be weeded out. Though RERA, GST and de­mon­eti­sa­tion hit the real-es­tate in­dus­try in the short term, these re­forms are bound to ben­e­fit the sec­tor and the econ­omy in the long-term.

niranjan hiranandani

Shishir BAI­JAL

Sushil raheja

Sachin Sand­hir

manju yag­nik,

Ash­win Sheth

ro­hit gera

Amar­jit BAK­SHI

parveen Jain

Shailesh pu­ranik

r K Arora

Anuj puri

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