2020: YEAR OF INDIAN REALTY RESURRECTION?
2019 was a year in which a number of reforms were brought forward. As we begin 2020, the new decade looks to be the year Indian real estate finds the stability and consolidation it desperately desires.
BY : LEANDRA MONTEIRO
Year 2020 might not be the brightest year for the real estate sector, but it certainly will lead the way towards the good old glory days of realty. In the last five years the real estate industry has been witness to a number of structural reforms introduced with the aim to increase transparency. Till now, the sector had been in a state of flux grappling with many changes but finally in 2020 we expect the changes coming to fruition, their impacts being absorbed and businesses getting back to their growth trajectory.
Amit Wadhwani, Managing Director Sai Estate Consultants Chembur Pvt Ltd is optimistic about affordable housing segment doing even better in 2020. “The higher liquidity and series of government measures like AIF will play out in the sector resulting in consolidation. Tier II and tier III cities may see slight uptick while the luxury segment in metros will continue to struggle, he said.
Ashish R Puravankara, Managing Director, Puravankara Ltd, goes on to add, “The real estate industry has evolved from brick and mortar to a service driven product offering and the growth of the sector will be largely driven by ever evolving customer requirements, technological transformations, and favourable a policy environment allowing it to flourish in the coming years.”
Manju Yagnik, Vice Chairperson Nahar Group and Vice President NAREDCO (Maharashtra) expressed, “The year 2019 will be remembered as the period which witnessed the maximum policy interventions. We hope that the benefits of such policy initiatives will become visible in 2020, Mixed-use project developments and smart configuration homes seem to be the future given the emergence of millennial customers, who will drive the next phase of transformation of the sector.”
Dr Kumar, Managing Director , Navin’s was of the view, “The year 2020 presents the best opportunity for the home buyer to buy apartments at bargain prices which viewed in the perspective of adjustments for inflation, are at the lowest in the last 7-8 years. The home loan interest rates are also at one of their historic low levels which means the EMIs payable by customer for the loans received are at the lowest level in many years which is an advantage for the buyers.”
“The successful listing & performance of Real Estate REIT, Launch of Rs.25,000 crore real estate Alternate Investment Fund set up will help provide last mile funding to affordable housing projects. The slashing of repo rate by 135 basis points this year has helped home loan borrowers. The reduction in corporate tax rate and reduction in minimum alternate tax (MAT) is path breaking. We believe 2020 would witness the early signs of revival and return of the sentiments,” stated Sanjay Dutt, MD & CEO, Tata Realty & Infrastructure Limited.
WILL THERE BE LIQUIDITY?
The industry seems to have sailed past the worst of the liquidity crisis. While the demand/ supply dynamics will change slowly, a series of government measures may actually instill confidence in the sector and pump liquidity to the industry. In addition, apart from REITs, the relatively unknown concept of Fractional Ownership Model is gaining traction. This Model is similar to a REIT and involves the usage of blockchain technology and the marketplace model. Both REITs and Fractional Ownership Model can emerge as credible alternate investment options.
Madhusudhan G, Chairman and MD, Sumadhura Group added, “The transparency in policies and the ease to do business have attracted many foreign investors to enter the real estate market and capture a substantial share. Now, with the increase in NRI investments, estimated at Rs. 46,000 crores in the last three months, the real estate sector is expected to escalate more in 2020.”
Additionally, the residential segment with stalled projects worth USD 66 bn is likely to provide an opportunity to invest in this huge pool of stressed assets. Also, corporates saddled with debt have been liquidating real estate assets leading to new opportunities. With India becoming a relatively much more transparent economy, foreign investors are showing interest and this trend will continue in 2020.
BULLISH COMMERCIAL MARKET
India office market has set a new benchmark and recorded a historic high, both in net absorption and new completions. While 46.5 mn sq ft of space got absorbed nearly 52-mn sq ft of Grade A office space was completed in 2019, according to a JLL report. In addition, introduction of more REITs will lead to developers thinking long-term and building better quality assets. Future demand is expected to come from the data centre industry as well.
Bijay Agarwal, Managing Director, Salarpuria Sattva group said, “With increased confidence shown by investors, commercial properties have become more attractive for real estate investments and funds. At the same time, with increasing disposable incomes and changing market outlook, even smaller and medium sized investors are getting a foothold in development funding investments. Of course, the fact that commercial spaces are easier to rent and invest helps in their being more lucrative at this point.” As we head into a brand-new decade, millennial are set to form 50% of the global workforce. This burgeoning and influential segment has been at the core of the co-working story and will continue to drive demand for such spaces in 2020.
Amit Ramani, CEO & Founder Awfis explained, “Flexible workspace revolution has begun and the year 2020 will definitely prove to be a gamechanger. Key trends expected to drive the sector growth include evolving business models, increasing investor activity and deeper geographical expansion with increased efficiency across existing markets. Technology enabled service will be at the forefront of flexispaces with AI & IoT taking centre stage. Autonomous workspaces will no more be a thing of the future. Tailor made solutions will be at the heart of co-working spaces with increasing need for customization across SMEs and multinationals. With the industry expected to grow three times by 2021, the sector poses immense potential for growth in the coming years.”
However, to truly realise their potential, co-working and co-living players must innovate and re-strategize their business models. 2020 is likely to see the rise of ownership model developed in partnership with landowners, developers or the space providers. This arrangement will create built-to-suit spaces that are customised as per the tenant’s needs.
AFFORDABILITY MEANS OPPORTUNITY
Affordable housing will continue to be a key driver for real estate market and provide a big opportunity for both developers as well as investors in 2020. There is a possibility of collaboration of the developers and the top Government organizations. This would ensure the minimization of the risks. Moreover, the RBI’s recent decision to link loan rates with the repo rate will have a significant impact on the affordable real estate sector. This move lowers EMIs on home loans, making them cheaper, as well as reduces the debt repayment burden on builders.
Rakesh Reddy, Director, Aparna Constructions & Estates Pvt. Ltd, explained, “The reduction in GST on under-construction properties and affordable housing was a positive step. Furthermore, the sector will benefit from revised income tax slabs that reduce overall tax expenditure. This will enhance the ability of the salaried class to invest in real estate. Expanding the availability of income tax deductions for home buyers can incentivise new buyers and widen the market opportunity. While the recent policy reforms will have positive implications for the real estate sector, there will be short-term challenges during the transition.”
Reeza Sebastian Karimpanal, President- Residential Business, Embassy Group, expressed ”We are now witnessing an amalgamation of all the generations with different preferences. Also, more than 40% of the population is expected to live in urban cities by the year 2030. In conclusion, the market is full of opportunities if you know your audience.”
10 WAYS FOR ECONOMIC BOOST
- Private equity players investing in housing finance companies will see a positive drive.
- The inflow of formal capital is not going to remain limited to the demand side, as the segment will also witness capital infusion on the supply side.
- With RERA providing credibility to the residential segment, PE players/ family offices/corporate players/HNI’s are likely to increase their participation in the housing including affordable housing segment.
- Quick implementation of credit easing measures like Alternative Investment Fund (AIF) for completion of stuck projects.
- Partial credit guarantee for banks buying assets of NBFC will provide some relief but more such measures needs to be worked out and implemented.
- Push Non Performing Assets (NPA) resolution timely to bring back liquidity in the system (especially through resolution and liquidation).
- Enhance liquidity for NBFCs by buying assets of cash strapped NBFCs using government bonds and funding the NBFCs from banks at concessional ratesStep up government spending to stimulate private investments in the economy.
- Create an enabling business environment, ensuring financial stability and good governance
- Build regulatory structures for attracting foreign direct investments as well as domestic investors.
- Reform the Companies Act by simplification of compliances and reducing penalties, making it more industry friendly.
IS REALTY SECTOR POISED TO GROW IN 2020?
In the year to come, realty firms will evolve to better appreciate the needs of the consumer in terms of timeline, quality and after sales service. Institutional investors too will have a better awareness of expected returns on property and its associated risks. Developers with a proven track record will remain as the preferred choice for consumers, who are now seeking transparency and accountability. Moreover, with the millennial generation entering the economy, there was a significant shift in the real estate market.
Nandu Belani – Director – Belani Group summarized, “Investment in India’s real estate sector is likely to rise driven mainly by huge demand for commercial office assets from IT. Affordable housing will remain upbeat, thanks to multiple government sops announced in 2019. Alternative asset classes like Co-Living, Co-working and Student Housing will be a driving factor and ready properties or properties nearing completion will generate more sales. Grade A Developers will dominate the market and rise of E-Commerce will create high demand for organised warehouses. In retail, mixed use formats will see prominence in 2020. In all a great year ahead.”
Despite the setbacks and fears surrounding the real estate industry, we are hopeful that the changing policies and cooperation from all the stakeholders of the industry, will bring about a positive change in the sector. India’s real estate industry and as we begin yet another new year, it will evolve to attain proficiency and effective resolutions.
CHALLENGES TO OVERCOME IN 2020
Inordinate project delays: It is of utmost importance to have a single window clearance system to streamline and quicken the project approval mechanism.
Non availability of Land: Substantial land parcels are held by the Central and State government entities such as railways, defence, and port authorities and there is a dire need to unlock the vacant land parcels to overcome the shortage and achieve Housing for All by 2022.
The on-going liquidity crisis: The cautious lending by NBFCs and dried-up investments in the sector have not only restricted the number of new launches but have also adversely impacted the execution of several on-going projects.
Lack of industry status: No industry status restricts the developers to avail funds at affordable rates, except for affordable projects. Government needs to incentivise the developers.
Disposing of Unsold Inventory. Lack of Infrastructure: With high land prices in the city limits there is a centrifugal push towards the periphery but lack of basic infrastructure like, proper Connectivity, Social Infrastructure etc has been a major hurdle for such developments.