After undergoing a series of economic reforms, headwinds for real estate sector are soon to change. 2018 is going to be a year for revival and growth
Some years from now, when realty analysts discuss the tough old days, 2017 will be regarded as the inflection point that signalled a transformation in this sector. This is the year when the Real Estate (Regulation and Development) Act, 2016, (RERA) became operational, promising a new era of transparency and professionalism in the industry. As developers across the country strive to become RERA compliant, trust will gradually be restored among buyers, signalling the first step in the long road to reviving the industry and reigniting demand. Since RERA mandates that all projects — nearing completion, under construction or new — be registered with the regulatory authorities, it will inject a strong measure of accountability and transparency.
Reforms drive transparency: Another major highlight has been the granting of infrastructure status to affordable housing. Under this programme, the Government plans to construct 10 million homes across the country, especially rural areas by 2019. What seemed like an overambitious goal barely two years ago, now seems entirely achievable as private players have joined hands with the Government. Public-private partnerships can lend wings to the Centre’s formidable target on affordable housing by 2022 for the masses. Moreover, the Government’s credit-linked subsidy scheme makes these affordable flats more affordable. To further boost affordability, the loan tenure for the flats has been hiked from 15 to 20 years under the Pradhan Mantri Awas Yojana. Cheaper funds will also be available for this segment via External Commercial Borrowings (ECBs) and refinancing of home loans from National Housing Bank.
Meanwhile, sales in the sector faced headwinds due to the persisting effect of demonetisation. The implementation of the Goods and Services Tax further compounded the impact of the nationwide slowdown. As the saying goes, however, ‘necessity is the mother of invention’. Developers across the country have weathered adverse conditions by curbing new project launches and focussing on completing the existing ones. Among other belt-tightening steps, consolidation has helped some keep the ball in play.
As the industry prepares for new year 2018, there is hope that early shoots of revival will become more pronounced in the closing weeks of 2017. Securities and Exchange Board of India’s approval for Real Estate Investment Trust (REITs) is good news for the industry. REITs will permit serious retail investors to place funds relatively safely in the country’s real estate market without resorting to speculative activities for short-term gains. In the coming years, REITs is expected to create a Rs 1.25 trillion opportunity. Combined with the measures mentioned above, it could trigger an inevitable shift from family-owned entities to more professionally-run ones. Professionalism and transparency will also rise with the increasing infusion of foreign direct investment. It may be noted that investors, domestic and global, are feeling more confident about realty prospects in India due to reforms and policy measures such as RERA, REITs, GST and demonetisation. The Benami Property Act, 2016, will also play a role in raising investor confidence in Indian real estate by curbing corruption and promoting higher transparency.
Affordability and stability: Taken together, these policy reforms are poised to ensure 2018 turns out to be a great year for real estate as their benefits become apparent in the new year. The other factor that augurs well is the Government’s drive on the ease of doing business. These measures have seen the nation jump 30 spots, being ranked 100 in the World Bank’s global ease of doing business 2018 rankings — an unprecedented feat in ease of doing business history and tremendous testimony to the Union Government’s sustained drive to improve India’s business climate. Besides the above, two factors will play a key role in improving customer and market sentiment in the sector: (a) developers’ decision to focus on timely, faster deliveries and (b) stable prices and the greater affordability of residential units. Projects and areas where property prices continue to be somewhat higher may witness further rationalisation of rates.
Whereas RERA, GST and demonetisation hit the industry in the short term, these are bound to benefit the sector in 2018 as the long-term gains slowly emerge. For example, while cash transactions in realty deals fell dramatically, cheque payments and digital transfers are promoting realistic, more affordable pricing, which will help improve sales and clear unsold inventories. In summation, it is clear that while 2017 was a year of consolidation for the sector, 2018 will be the year of revival and growth, though this will continue to be slow and steady.
(The writer is chairman, Supertech limited)