Appraising The 2019 General Elections: Will Infrastructure Win?
General elections are both exciting and nerve racking for the real estate sector. Experts assert the Indian real estate sector will only gain traction in 2019 if the overall macroeconomic environment remains favourable. The upcoming general elections will definitely play a pivotal role in this. For any sector to do well, however, a stable government at the centre with a strong hold on the baton of change is indispensable.
2017 reforms – a cornerstone for Indian realty
The real estate sector in India has been settling down with the spate of policy-level reforms and regulatory measures introduced in the past 2-3 years. Whether it is the Real Estate Regulatory Act (RERA), Benami Transactions (Prohibition) Act or Goods and Services Tax (GST) regime, the clouds of uncertainty are dissipating and the sector can finally see the silver lining. That being said, all structural changes that took place in 2017 will need a few years to materialize, if not slightly longer.
As the consumer confidence grows, there are some signs of progress in the sector witnessed in the past few months. At the same time, we should acknowledge that the number of project launches across the country has gone down significantly and thus the erstwhile scenario of oversupply is reducingquickly.
Looking at the positive scenario that the realty sector is witnessing, the current growth momentum must sustain and not slow down even with the general elections coming up in the first half of 2019.
Arvind Nandan, Executive Director-Research, Knight Frank India, talking about the impact of reforms, says, “We realize that we are passing through a ‘bridge of time’ in 2018, which has had a series of crucial events on one side in 2017, and is heading to another landmark event, namely, the general elections of 2019, on the other. The elections of 2019 are unlikely to change the direction of real estate evolution, irrespective of any government. We have started to witness very gradual, though below the surface movements, and in a matter of 6-12 months, the activity levels should get better. One must also bear in mind that there has been a strong headwind in recent times, leading to pressure like a sliding rupee, marginal dip in industrial production, etc., coupled with financial market stress. But these should be addressed over the next couple of quarters. The world bank and most international institutions have regularly reposed faith in the Indian economy’s inherent strength, which should help the markets get better in due course.”
What’s in it for developers?
Ramji Subramaniam, Managing Director at Sowparnika Infrastructure Pvt. Ltd is of the opinion that general elections are not substantive for the real estate developers, but it affects buyer sentiments as they adopt a wait and watch approach. Their expectations from the new government would be high, with the buyers looking forward to new schemes, policies and offers.
Subramaniam further elaborated, “, the new initiatives under the Prime Minister’s Awas Yojana (PMAY) have encouraged the masses to own their dream homes, further giving an impetus to affordable housing and boosting the real estate sector. Now, with the 2019 elections set to be held in a few months, prospective homebuyers will be eager for new reforms and subvention schemes. It will definitely make a difference to the sector in terms of buyers’ outlook and desire to purchase a house.”
Reiterating Subramaniam’s views, even Pradeep Aggarwal, Co-founder & Chairman, Signature Global Group, also opined, “Elections do not affect the real estate market as such. However, it impacts the sentiments of homebuyers and investors. The new government may bring new schemes, offers and policies which may or may not be conducive for investments. For developers, the situation remains similar, only the stakes go higher.”
Putting things into context, Ashish Bhutani, MD, Bhutani Group, said, “The new supply will go further down as most developers would prefer to wait for the election outcome and launch their new projects once this mega event is over. Certainly there are reasons for this stance; we cannot rule out the possibilities of amendments in policies with the new government forming at the Centre. This means, due to limited inventory, property buyers will have fewer options at their disposal and the supply-side may start striking equilibrium with demand sooner than later.”
To buy or not to buy?
Conventional wisdom says that the best time to invest is when the markets are near the bottom. There has been a protracted stress in real estate markets, with a hope of revival which keeps shifting forward every few quarters. Sharing his experience on the same, Anuj Puri, Chairman – ANAROCK Property Consultants,“Buying decisions for end-users should be dictated by need and affordability. The results of the elections cannot be predicted, but there is a chance that prices may rise after they happen.”
“Post elections, real estate prices may shoot up as the investor segment will consider entering the market more forcefully, though much will rest on the stability in the political scenario. A decisive government at the Centre will drive large institutional and private equity (PE) investments to infuse huge capital in the sector. In the other case, even if there is a government with weak majority, people will need to buy residential and office real estate to fulfill their basic necessities, and the end user segment will remain the prime factor driving momentum,” explained, Bhutani.
From an investors’ perspective, this is a good time to enter the market, since the supply side is under pressure to clear stocks. Moreover, with the central bank having held the repo rates steady for now, the window of opportunity is just about available.
Change of guard = Change in policies?
A change in policy or outlook can definitely alter the direction, if not completely halt ongoing projects. Sharing his perspective, Nandan, said, “Infrastructure is one of the biggest focus areas for the country, and we think any government which takes control of the executive post general elections, will stay committed to the cause of infrastructure development, as well as that of speeding up urban development.
Opining on the same, Preenand Premachandran, Chief Executive Officer, Hebron Properties Pvt. Ltd, “I believe we have seen major infrastructure developments across the country and state. As the momentum needs to continue in whichever government comes to power.”
Critically talking about the ramificationsof a change of guard, if it happens, might bring, Aggarwal, said, “Government projects that are initiated just before the elections bear the consequences of the change of body. The policies are reformed and revised and thus a developer opts for a ‘wait and watch approach. Once the policies are formulated, infrastructure development is on pace he initiates his project in a particular area.”
Sharing a positive opinion on infrastructure growth and that irrespective of a change of governments, infrastructure will remain a core growth sector for India, Bhutani, shared his balanced opinion, saying, “I believe that infrastructure being the core sector and an engine of growth, no government likes to ignore it or play rough. In fact, if you notice the past few elections, the new governments focus on infrastructure development even more than earlier. In the end, governments are formed by people’s representatives and they never like to disappoint the masses by making alterations in key infrastructure projects on a negative note. I am positive about the future and feel that our government, irrespective of which political party wins the mandate, will further elevate the state of infrastructure in the country on top priority.”
2019, the year for real estate?
Since the election results often impact the overall health of the Indian economy, certain transformations are expected to materialise in the markets with a new government taking charge. This will further have its repercussions on real estate as it is closely linked to the capital markets since capital markets often precede real estate. If the capital markets or the stock markets rise, investors with an unanticipated boost in wealth will propel the demand for real estate. The markets are major attractions for investors as they hold great significance for the economy.
Depending on the party coming to power and its’ proposed policies, the impact will vary from the previous government which might be positive or negative for the realty sector. Development and consumption patterns are dictated by how well the economy is doing. In a booming economy, developers feel enthused to launch new projects, since buyers are more favourably disposed towards purchase decisions on the back of better job security and disposable income.
Puri opined on the future of realty as we make way for 2019 and prepares for forthcoming elections, saying, “The state of the economy also dictates how well other investment asset classes perform and this has a direct correlation to real estate sentiment. If, for instance, mutual funds are doing well in a strong economy, potential homebuyers who are invested in them have improved financial means to make property purchase decisions. Likewise, developers are able to raise funds more efficiently in a booming economy, which encourages them to launch more projects. This, in turn, helps overall affordability as increased supply keeps property prices at rational levels.
Talking about the impact of financial markets on real estate, Nandan, said, “Financial markets and economic conditions have a very important role to play in real estate. Real estate purchases are greatly dependent on the demand-side’s financial security and confidence in the mid-term. The mortgage or home loan dependent buyer needs to have sufficient degree of financial security to make a commitment. Similarly, the supply-side must have a capable enabling ecosystem, including viable procurement prices, good labour markets, clarity on taxation, visibility of demand-side’s expectations, etc., in order to ramp-up its stock creation. There could be a short-term intermittent pressure for the supply side, as banking corporations and NBFCs deal with their current debt-piles and cleansing processes. However, the overall strength of India’s economy should clear the path once we ride out this period.
Concluding on a positive note, Premachandran, said, “When the other investment opportunities reduce, people turn to safer real estate investments. In India real estate market sentiments have been low in the past few years and financial markets been doing well, but today it looks the other way. It looks like this will continue for at least another year.
“Buy land, they’re not making it anymore” Mark Twain
Well, it is a universal truth that real estate is far more stable than financial markets, particularly equities, currencies and commodities. As an asset class it has a greater potential to create wealth and generate superior returns on investment (ROI) than other stable streams such as gold, fixed deposits and bonds. The volatility in the financial markets tend to make more and more people realize that there is no match to real estate, provided one is ready to take a long-term view.