New Year New Possibilities – Realty+ takes a look at the realty sector’s hopes, expectations & aspirations
Every New Year brings with it new opportunities and new chances. Realty+ takes a look at the sector’s hopes, expectations & aspirations and what the industry leaders have to say.
Text: Sapna Srivastava
The anticipations for the New Year are high. The advanced infrastructural development and emphasis on metro lines in major cities are set to bring about favourable changes in the urban landscape. In addition, the recent motivation of lowering the GST rates for real estate has stoked up the sector’s expectations.
Rationalization of taxes would be the one most important factor that the real estate industry would expect at this point of time from the upcoming Budget. It will create an environment conducive along with the positive sentiment to enable generate new business opportunities across the economy. Among the expected points, I would also add the expectation of bringing Stamp Duty within the purview of GST; Input Credit of Construction against output of Renting; incentivize Rental Housing to meet Housing for All commitment by 2022 and increasing limit of interest deduction, paid on home loan, from 2 lakh to 3 lakh, said Dr. Niranjan Hiranandani, National President, NAREDCO
According to Frank Knight Research, regulations imposed by the government to ensure accountability on the developer have discouraged speculators and laid the foundation of a healthy end user’s market. The government’s ‘Housing for all by 2020’ and the granting of infrastructure status to the affordable housing sector have also shown positivity in the market by improving the affordability of the home buyer.
Amit Ruparel, Managing Director, Ruparel Realty added, “With many domestic and foreign investors eyeing the real estate market, we expect more positive trends like investments by global investors, revamping of business models, market consolidation which will wash out all the bad elements from the real estate sector and create more trust & transparency in the industry, thus reviving the real estate market. Affordable housing will continue to be the flavour of the year. We feel that it would be an ideal situation if the government reduces GST even for under construction and commercial projects just as it has been reduced to 8% in affordable housing.”
Rajesh Jaggi, MD, Real Estate, Everstone Group reflects that “India’s logistics and warehousing sector is on a growth path, driven by favourable policies, economic expansion and the rise of organised retail and e-commerce. We expect warehousing and light industrial manufacturing to witness continued demand, and add new capacity with large, state-of-the-art infrastructure and locational advantages.To fulfil this surging demand, IndoSpace plans to build logistics parks across newer geographies while also expanding presence in the existing markets. These developments will help IndoSpace move towards its goal of a pipeline of 120 million square feet of modern logistics infrastructure to support the growth and modernisation of India’s supply chain.”
The year 2019 started with some grave political upheavals across the globe which will influence the Indian politics and economy and in turn the fate of real estate. However, India’s GDP growth is expected to hold strong and the several large-scale, key infrastructure projects underway bode well for the country. A balanced GST rate and a strict adherence to RERA guidelines will further strengthen the realty sector. While, the year 2018 at best was a period of recovery for real estate, this year seems to be a time for a fair number of expectations from the government and the budget.
The Commerce Growth
In commercial space, Colliers International expects capital values to rise at a 3%–4% rate and average annual rent growth of 4.1% over 2018–2021. The Indian office market is dominated by technology groups, which account for 60–70% of gross absorption of office space and the given growth rate is predicted to be sustainable for several years.
For the Indian retail sector, 2018 was an eventful period. The 51% FDI in multi-brand retail and 100% FDI in single-brand retail under the automatic route are definitely the crowd puller for global retail giants that would invest in retail space across India. As per industry estimates nearly 3 million sq ft of retail space becoming operational in 2019 will be in Tier 2 and 3 cities.
Surendra Hiranandani, Founder & Director, House of Hiranandani explains the dynamics of each segment, “A stable government at the centre in 2019 will boost the growth in the sector. The economic indicators have remained positive with India’s GDP growth rate pegged at 7.3% however; more efforts will have to be put in 2019 to maintain the existing momentum. Affordable housing will continue to drive residential housing and the massive push for improvement in infrastructure will benefit this segment. The Logistics sector is showing a massive growth thanks to the implementation of GST. In 2019 and we will see established names further capitalize on their brand to strike joint development deals with smaller players. To sum it up, 2019 will start on a cautious note due to the upcoming elections, but will pick up significant momentum thereafter, in all real estate segments.”
The Residential Space
Tthe first half of 2018 showed a strong comeback in residential properties demand though prices remained fairly stagnant. JM Financial Institutional Securities spokesperson in a report mentioned that while inventory overhang is expected to continue in 2019, developers offering value propositions to the end-users’ will benefit, as the market consolidates. Improving affordability and higher transparency will result in better economics over the medium term.
The residential segment contributes between 75 – 80% of the overall real estate development in the country. We see that on one side, the policy push for affordable housing is reviving the segment from the slowdown but buyers continue to be largely cautious and sales have been, at best, steady. Sales of premium residences were sluggish while affordable housing, as a segment, gained traction. The Bangalore commercial leasing market will continue to be encouraging and will outperform the other major commercial real estate markets in India. We expect to see better traction in the residential segment especially in the mid-income and affordable housing segments.”elaborated C N Govindaraju, Chairman & Managing Director of Vaishnavi group
Indeed, developers are now more focused with the projects they undertake. Gone are the days where the only aim was to construct and sell. Year 2019 throws light on the new and innovative ways that Indian developers are incorporating to better their projects. Design is being used as an angle to market projects. Builders have learnt that properties with architectural aesthetics and good planning are more sought after by consumers even if it is an affordable project.
The last few years’ radical changes have pushed Indian realty in the direction of becoming more transparent and professional. In addition, the expected positive initiatives from government and other agencies will help accelerate its sector’s recovery and enable growth in coming years.
The Outlook 2019
Historically, the real estate sector remains sluggish during the run up for the elections. As we approach 2019 general elections, the sales would remain low due to property buyers wait and watch stance. But, the sector does expect to see rationalization of GST and further evolution and implementation of RERA. Also, if the current NBFC crisis is not resolved soon, the much-anticipated recovery of the sector may get prolonged.
Amit B. Wadhwani, Co-founder, Sai Estate Consultants elaborated, The general elections are around the corner and the government will look to incentivize the salaried class as they share a large number of voter base. With GST Council considering cutting tax on under construction houses, the home inventory is likely to become cheaper. Even if RBI hikes interest rates by 50 basis points, it is unlikely to impact the home buying sentiment. In the year 2019, the lower sales price is expected to translate into an exponential growth in home sales volume.
As a matter of fact, the uptick in the affordable and mid-income housing is expected to continue in 2019 across the cities along with the preference for ready to move in units owing to RERA and GST benefits. The industry is also looking ahead to REIT listings in 2019 that will infuse liquidity in commercial real estate and in turn fuel growth for office, warehousing and industrial and retail spaces.
What’s more, India has managed to jump a significant 52 positions on the Ease of Doing Business rankings released by the World Bank. This will promote the growing entrepreneurial ecosystem in India and have a multiplier effect on real estate from residential to office segment in coming years.
Khushru Jijina, MD, Piramal Capital & Housing Finance keeping his expectations realistic said,
Year 2019 is likely to start on a moderate note with the sentiment remaining muted in the run up to the upcoming general elections. Today, 70% of the housing finance book by value is attributable to a few metros that primarily include Mumbai, the NCR, and Bengaluru. Most of the HFCs will have to wait for a rationalization of prices to drive growth whilst also looking beyond Tier I markets where housing units are still affordable. Along with the government and regulator’s efforts to revive the real estate sector, developers will also look to come up with multiple promotional offers and subvention schemes that are focused on driving a purchase decision amongst the salaried class.”
In fact, the developers would need to align the residential supply with demand that is driven by nuclear families and millennial with increasing disposable incomes. Till now, owing to a price mismatch, increase in sales had been an issue but developers are trying hard to align sizes of residential units to suit the budget of end-users. Also, the share of co-working in total office leasing that increased to 10% in 2018 from 5% in 2017 will continue to see strong demand from start-ups and SMEs as well as large mainstream corporates.
We foresee 2019 as a much more promising year for the residential real estate along with retail and hospitality sectors. General Elections-2019 may impair the decision making process of a small section of home buyers till May- June 2019.Another key factor which will impact the realty sector in 2019 would be the rise of new age home buyers. Understanding this opportunity, real estate players today are coming forth with new concepts of projects like integrated living. This is supported by changing buyer preferences which is shifting the landscape of the real estate market,” said M. Murali, Chairman and Managing Director, Shriram Properties
The current market dynamics demand consolidation and the year 2019 will see increased activity on that front. Joint developments, joint ventures and development management agreements between landowners or smaller developers and larger, organised developers will spread across all segments of the real estate.
Obviously, the importance of the real estate sector is not lost on the central and the state governments. It contributes 6-7 per cent of India’s GDP and is expected to generate over 15 million jobs over the next five years. What will be interesting to see is if the new government (whether current or new political party) will continue with the reforms and sustain the GDP growth.
The year 2019 will be both challenging and opportunistic. Apart from elections, financial stability, progressive policies and infrastructure boost will set the tone for the direction Indian real estate will take.