Real estate heads for subdued start

The year 2016 was significant for the real estate sector due to the number of reforms that were initiated in the period. These include the Goods & Services Tax (GST), clearance for Real Estate Investment Trusts (REITs), relaxation of foreign investment norms and the implementation of the Real Estate (Regulation and Development) Act (RERA) that are all expected to augur well for the sector in the coming year, according to analysts and developers.

“RERA, GST, REITs and the latest demonetisation drive will bring in transparency in the sector and will boost the confidence of consumers, developers and investors in 2017 and coming years,” said Anshuman Magazine, Chairman India and South East Asia at the international real estate services firm CBRE Group Inc.

While demonetisation would help enhance transparency and pave the way for increased global institutional capital, a timely implementation of GST would help address ambiguities around taxation and benefit sectors such as warehousing, Mr. Magazine said.

Despite several positive policy initiatives, a few issues, however, still continue to act as a deterrent to the sector’s growth, he said.

Capital inflows

“Capital inflows are still low due to banks remaining wary of investing in real estate,” Mr. Magazine said. “From a policy perspective, ambiguity in land acquisition laws and state specific RERA laws and its implementation are slowing down development of the real estate market,” he said.

“All this aside, India will continue to retain its position as a bright spot in the global economy, with better growth prospects expected to support commercial space leasing in 2017,” Mr. Magazine said.

Cash crunch

However, with global disruptions and the cash crunch that had ensued in the wake of demonetisation impacting the real estate sector, the year 2017 was headed for a subdued beginning, according to industry observers.

With enquiries, walk-ins and sales drying up as a fall-out of demonetisation, the first two quarters of the coming year were likely to witness a substantial slowdown in sales, said Shishir Baijal, Chairman and Managing Director (CMD), Knight Frank (India) Pvt. Ltd.

“In the first half of 2017, the sector is expected to be largely muted and there would be pressure on prices. With consumers in a wait and watch mode, demand could be subdued due to a mindset that property prices could undergo reduction along with a substantial lowering of home loan interest rates,” Mr. Baijal said.

The office market is expected to face challenges to maintain the prevailing pace of growth in the coming year. This could be due to the geopolitical risk of a probable reduction in outsourcing from the U.S., structural changes in the domestic economy and top technology companies reducing their growth targets, Mr. Baijal said.

On the positive side, the implementation of RERA by May 2017 coupled with legislations like the GST bill and Benami Act would further increase transparency and reliability within the sector. “This will also see a boost in institutional funds flowing into the sector at competitive rates which will enable the sector to come out of the woods,” Mr. Baijal said.

‘Ideal year’

Real estate developer Surendra Hiranandani, CMD, House of Hiranandani said 2017 would be an ideal year to buy a house as borrowing rates would taper given the huge influx of money into the banking system post demonetisation. “This can set off a cycle, wherein lower rates of interest will prompt borrowers to avail more loans at attractive interest rates,” he said.

Mr. Hiranandani said home buyers could now get good deals in the market as the industry had just begun to adjust to the new rules. “This holds true especially for the first quarter of the year as most developers will look to sell existing inventory, so consumers should make the most of this opportunity and purchase property at attractive prices,” he said.

The approval process, however, still remained a major impediment to real estate development, according to him.

“While the government has done a lot to ease the functioning of the real estate sector and protect the consumers, it must get the statutory authorities responsible for clearing the projects within the purview of law. Administrative reforms should be made to facilitate quicker approval process which will help developers complete and handover projects on time,” Mr. Hiranandani said.

‘Promising potential’

Brotin Banerjee, Managing Director and CEO of Tata Housing said the long-term potential of the industry looks promising and the policy changes had set the base for developers to capitalise on.

“However, the industry will get a boost when it is granted crucial infrastructural and economic necessities from the government. So, the year ahead is pivotal for completing the process of structural reform that is presently underway,” Mr. Banerjee said.

The affordable housing segment would likely get a big boost in the coming year, according to Mudhit Gupta, CMD, Emgee Group which is into developing affordable housing projects.

“Affordable housing segment will benefit the most especially with a mandate from the Prime Minister and government with housing for all 2022 and through grant of various incentives like no service tax, VAT and interest subsidy of ₹2.2 lakh under Pradhan Mantri Awas Yojna (PMAY),” Mr. Gupta said.

[SOURCE:-The Hindu]