Real Estate– How Current Issues Might Evolve
Real estate one of the most sought-after investment avenues in India has seen a dip in popularity of late. In 2017, new launches were limited compared to previous years. However, experts believe that the real estate market is going through a transitional phase. Things are going to get better over time because reforms in this sector announced by the government will ready the industry to a more consumer-friendly market. In 2017, the Government of India brought in laws (IBC – Insolvency and Bankruptcy Code Amendment Ordinance 2018 & RERA – Real Estate Regulation and Development Act 2016) to ensure that home buyers are no longer at the mercy of dubious real estate developers.
Prior to 2015-2016, housing supply fell short of the demand especially in metropolises; to a certain extent in tier 2 and 3 cities. Real estate developers anticipating the need for a robust demand created more and more projects which led to a glut in the market.
The market may not see a dramatic recovery in the days to come, but it is certain whatever recovery and growth we see moving forward will be sustainable and backed by stronger market fundamentals than ever before. The days of speculative peaks and troughs are safely behind us.
Going forward, experts predict a different scenario for the real estate sector. Fly-by-night promoters and smaller players will disintegrate. As such, promoters who comply with (RERA) norms will run the market.
OVERABUNDANCE OF LIQUID ASSETS IN BANKS
The overabundance of liquid assets in the banking system led Reserve Bank of India to lower lending rates. As a result, home loan interest rates that were at least 9.5% in 2016 are now in the region of 8.3%. Equated monthly installments (EMI) costs have come down enabling homebuyers to take advantage of affordable home finance and eventually become property owners.
For the real estate sector in India, 2017 was very significant given demonetization the year before. The goal was to oust black money and bring in market transparency to make the residential property sector consumer friendly. In addition, the Indian Government brought in several amendments to change the status quo of the real estate market.
The real estate sector is the second largest employment generator after agriculture. It is expected to grow 30% over the next decade. This sector comprises of four subsectors; housing, retail, hospitality, and commercial. The growth of this sector is complemented by the corporate environment and the consequent demand for office as well as urban and semi-urban space. Domains such as IT/ITeS, retail, and e-commerce have registered high demand for office space in recent times.
The Indian government in its ‘Housing For All by 2022′ policy has allocated Rs. 8 billion for affordable housing. The hope is that this will stimulate the real estate sector. Demand for affordable homes will be the focus in the days to come rather than premium properties. Average apartment sizes even in metropolises have fallen. This is a strong indication that developers are making houses affordable for buyers. Over the past one year, more and more residential sales have come from affordable housing. This is consequent to the government’s decision to grant infrastructure status for this segment. Housing developers will be more creative about how they design and construct residential spaces.
The year 2017 saw the drastic changes in decades especially on the policy front. GST and RERA were put in place. Benami transaction law due to demonetization also had its impact on the sector.
REAL ESTATE INVESTMENT TRUST
A REIT is a corporation that owns, operates, or finances income-generating real estate. For a company to qualify as a REIT, it has to follow certain regulatory guidelines. REITs sometimes trade on major stock exchanges like other securities and provide investors a liquid stake in real estate.
REITs operate in a manner similar to mutual funds. They allow individual investors to acquire ownership in commercial real estate portfolios such as apartment complexes, hospitals, office buildings, warehouses, hotels, and shopping malls. They pass on the collected rent to investors in the form of dividends.
GROWTH IN METROPOLITAN CITIES
In spite of major reforms that affected the country’s housing sector last year (demonetization, RERA, and GST) the commercial segment did well in 2017. The commercial real estate market in metropolises is likely to remain robust with sustained demand from technology, finance, automobile, and logistics companies. Bengaluru followed Hyderabad and Pune will be at the forefront of this interest.