2019: Year for real estate!
This term of the present government has been a roller coaster ride for the real estate industry, the current government has made some landmark decisions, which has made this opaque and unorganized real estate sector into a transparent, efficient, affordable and consumer friendly asset class for the people. Talking with Realty Plus on the Effect of Elections on Real Estate , Pranav Sharma, Founder & Director, Felicity Adobe LLP, shares his views on this pertinent subject, and how it will change the future course of action for the entire realty sector.
Elections and its impact on real estate sector:
The sector was at a slow growth in past few decade due to being unorganized and transparency in the system, owing to inflated prices and thus purely based on the speculative growth, policy changes like RERA, GST and demonetization has truly reformed this sector for good, though initially these policy decision proved to be downhill for the growth but the long term affect of these reforms like low lending rates by government after demonetization due to increased cash deposits in bank, Organisation and segmentation of roles of the sector after the advent of RERA, simplification on the taxation structure and elimination of indirect taxes like VAT, Service tax, customs duty has highly given a boost to the sector for an exponential future growth, people have different approach to the real estate during the times of pre-elections, most of the people like to wait & watch strategy as they expect some reforms in the sector with the new ruling government, so the overall growth of the sector is a bit stagnant during this tenure, the investor and home buyers who were in anticipation of the pre election situation after the election make a move thus the growth in this asset class in expected to increase in the post elections time, though the sector being governed by a lot of driving and resisting scenarios, the overall impact of all these put together determines the market shift.
Seeing the current boost in the sector specially in the affordable housing under the PMAY schemes in major focus of the government due to huge demand projected in the government survey, with additional benefit of being recognised as infrastructure development, Easy Approvals and tax exemption giving an lucrative offer for most of the developers & buyers to own an asset at affordable price which is expect to yield good benefits in future. market seems to be in the uphill movement in during the year 2019 and will prove as a good opportunity for investor and home buyers to put their saving as the prices are expected to increase post elections giving stakeholders good return on investment.
Tier 2 & Tier 3 cities have seen an exponential growth in terms of appreciating of real estate prices, increasing urbanisation giving boost to the overall demand for housing, higher average spending capacity of the area and new opportunities for development of project which are new to the regions in addition to low cost of land are some of the major attractions, the future of real estate for residential, commercial and industrial will be around the development in these cities.
Impact of elections on ongoing projects and infrastructure growth:
First, the corruption we see in infrastructure projects often has political roots. Capital infrastructure projects which can generate kickbacks are one of the main means through which incumbent politicians and parties can raise money and pay off party supporters, especially
during times of elections ,Contractors and landowners can be overpaid, paid early, given extra payments to cover unforeseen problems on the project, etc. as a way of channeling funds to them.
Second, much infrastructural spending, especially in the states, is distributed in a clientelistic way, with the primary aim of securing political support and votes. Proceeding with unviable and impractical infrastructure development just to again support and votes from the general public are taken which in return proves to be liability to the future ruling party in terms of unnecessary spending, waste of resources like man hours, raw materials and improper planning of the city, company undertaking government contracting for infrastructure development seems to the most impacted amongst the group, overall the impacts of this on the affordable housing business is really very low and modest impact on the business.
Impact of financial and economic markets will have on real estate:
Economic and financial markets are amongst the major factors influencing the real estate growth and has large direct and indirect impact on the sector as whole, financial market owing to such large share in the country GDP directly affect the spending capacity, behaviour and sentiments of the investor and buyers which largely affect the supply and demand in the sector which is a major influencer for the pricing in the sector, owing to the direction of the shift in the market. Indirect impacts is the rate of interest, lower the interest rate, the cheaper the cost of entering into a mortgage agreement. This means that a mortgage is far more accessible to far more people and demand for real estate goes up. When the demand for real estate rises, so too will the price of the properties and visa-versa, Economic markets, majorly decided by forex market, inflation, GDP and even prices of goods and service, The real estate price often reflects the state of a country’s financial health, a cash rich economy attracts the investor to have good capital gains on their investment providing a growing and sustainable environment to the sector.