While 2017 has been an action-packed year for the real estate sector with many far-reaching reforms, New Year 2018 will continue to pose some challenges as well as offer opportunities.
According to top developers, significant announcements such as affordable housing getting infrastructure status, implementation of the Real Estate Regulation Act (Rera), GST,
RBI bi-monthly polices and the Benami Property Act, have restructured the system and reinforced investor trust by creating transparency and accountability.
Policies have also impacted the supply side by encouraging developers to change their business models, and open avenues for partnerships and consolidation. The coming year would be a great start for affordable housing, fuelling growth in the sector, creating employment opportunities and meet housing needs.
State governments are also taking measures to develop infrastructure such as new metro lines, road connectivity, flyovers, coastal roads and sea links to support the government’s initiatives to promote the sector.
Sachin Sandhir, global managing director – emerging business, at Royal Institution of Chartered Surveyors (RICS) South Asia, a self-regulatory professional body for land, property and construction told Financial Chronicle: “We expect 2018 to be a year of stability and consolidation for the sector. Developers will become more familiar with GST and Rera and this should help them plan their businesses better.”
Compliance with Rera could be a problem for some small developers, however, because of the mandatory requirement to hold 70 per cent of buyer advances in an escrow account.
This could cause a cash crunch for developers, who rely solely on buyer advances to fund construction of projects, forcing them to join hands with the larger players.
“Organised real estate developers, with access to institutional funding will find it easier to comply with Rera. We are already seeing new business models emerge, such as developers doing joint projects with landowners. We will see more of this next year,” says Sandhir.
Many real estate honchos believe there are likely be fewer project launches in the residential segment in 2018, at least until developers are familiar with the new regulatory framework.
The focus will continue to be on completing existing projects. This may hit the supply of new homes, which is perhaps good for the sector because it will help balance out high levels of unsold inventories.
“The premium and luxury home market is well served. While the margin is higher in this segment, we expect to see more launches in the affordable segment,” points out Sandhir.
The New Year is likely to bring in better business for real estate, according to Anuj Puri, chairman at ANAROCK Property Consultants.
He says home buyer confidence is reviving and more fence-sitters would get into action in 2018, which would be a year of gradual market recovery defined by restricted new launches, gradually improving sales and declining unsold units. “With massive focus now on affordable housing, this segment will be the poster boy of 2018. Another notable phenomenon will be large-scale consolidation of developers and brokers, and distressed assets changing hands, ” says Puri.
According to him, though the sector may not see scintillating residential market recovery in 2018, it is certain that whatever recovery and growth is witnessed, would be sustainable and backed by stronger market fundamentals, more than ever before.
Niranjan Hiranandani, president at the National Real Estate Development Council or NAREDCO, says that the prospects of the real estate sector in 2018, a major employment generator that could propel GDP growth, looked promising with rising purchasing power, growing aspirations, increasing nuclear families, rapid urbanisation, easy home loans and low interest rates, as triggers.
“It is the ideal time to invest in a real estate asset and wait for the best returns,” says Hiranandani.
According to him, commercial real estate is likely to be the key driver with new asset classes like retail and warehousing attracting not just domestic but also global investors back into the sector.
JC Sharma, VC and MD at Sobha concurs. He told Financial Chronicle: “The long-term benefits of two historic reforms of Rera and GST will become visible in 2018. There will be greater focus on faster execution of projects to meet delivery timelines, especially for the existing projects.”
He says affordable housing received a tremendous boost when it was accorded the infrastructure status during this year’s Union budget.
In fact, it is considered the next big market opportunity in the Indian residential market. Many developers, including those who traditionally dominate the luxury or high-end space, are now looking to get a slice of this segment. “We have witnessed a significant surge in affordable housing projects across all major cities, vis-à-vis 2016,” says Sharma.
Amit Modi, director at ABA Corp and vice-president Credai western UP, however, is not that optimistic.
He believes that lack of industry status to the real estate sector, the absence of a single window clearance system, exemption limit on interest on home loans and high rates of GST are some of the challenges developers would continue to face in 2018 and beyond.
However, he says the New Year would be a year of delivery for developers. “Developers are focusing firmly on selling their existing inventory and finishing their near-complete projects rather than launching new projects. Hence 2018 will be the year of delivery as sales in the residential market would pick up in few months from now,” predicts Modi.
He also points out that homebuyers would show greater interest in ready-to-move-in or near complete projects.
Modi is also of the view that next year would see the return of luxury housing with Rera firmly in place now. “The confidence of real estate investors is returning and high net worth individuals and high profile investors will start putting their money into the real estate sector, which will lead to demand for luxury housing in the country,” he says.
According to Ashish Puravankara, managing director at Puravankara, several developments in financial and regulatory policies for buyers and developers have resulted in a positive market sentiment.
“These structural reforms will ensure a favourable business environment and boost the existing sentiments of both end-users and the investors,” he points out.
Shailesh Puranik, managing director at Puranik Builders, sees a number of new launches in 2018 that would boost growth. “And though we might see flexibility in payment plans, the prices are expected to remain stable in 2018,” he says.
KP Pradeep, CFO at Brigade Group, says that real estate lending as a category has been assigned 150 per cent risk weight and is perceived to be a relative higher risk in the overall risk profile for a bank.
Given the current reforms in the sector and the fact that there have been no significant defaults, risk weights should be appropriately adjusted downwards, which would consequently reduce capital provisioning requirements and in turn, reduce borrowing costs.
GST, Pradeep says is also one of the game-changers for the Indian economy, including the real estate sector, since it subsumes more than 16 major taxes and levies into a single consolidated tax.
With GST enforcing transparent transactions across all domains, this is a blessing in disguise for real estate developers as well.
“While now there is clarity on the taxation front, we believe that the GST rate should be brought down as home buying is one of the biggest investments of a consumer’s life. Hence, to encourage more and more buyers, the government should consider reducing GST rates,” Pradeep says.
Ashok Mohanani, chairman at Ekta World and vice president at NAREDCO West, says the Indian real estate market has the potential to become worth $180 billion by 2020.
The housing sector alone contributes 5-6 per cent to the country’s gross domestic product (GDP).
“The government’s incentive programmes for affordable housing is quite big and strong and its effects are already visible,” he says, adding that 2018 would see a positive trend with developers focusing on execution.
Mohanani believes consolidation and joint developments would be the norm going forward and the sector would be left with credible brands leading to higher consumer confidence.
However, the affordable housing segment may witness loud demand in 2018 under government’s Pradhan Mantri Awas Yojana (PMAY) housing for all, he says.
Concurs Brotin Banerjee, managing director and CEO at Tata Housing. He says that the affordable housing segment would grow substantially over the next few quarters, and be the growth driver for the real estate sector in the coming year.
Banks are expected to translate rate cuts in lower EMI and lower home loan rates, and this would stimulate consumer demand.
Banerjee elucidates: “Next year, we will begin to see and measure the impact of reforms in the sector. While much progress has been made, we are also anticipating that better infrastructure coupled with improved consumer confidence will pave the way ahead for real estate, and that the sector will remain a robust investment spot.”
Agrees Ram Walase, CEO and MD at VBHC, who points out that higher demand for affordable housing segment would continue to be the bright spot over the next couple of years, primarily driven by PMAY subsidies and favourable government policies.
However, it would take about 18-24 months for the real estate sector to recover from the effects of inventory overhang and regulatory interventions.
The current trend of limited new launches and muted price inflation would continue in 2018, he points out, a trifle sadly.