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Residential Realty Poised for Revival in Festive Season 2017

Every year, the end of August ushers in the beginning of festive season in India. Religious sentiments lead innumerable Indians to plan important purchases and investments – including real estate – during this period. Naturally, developers also plan for these months well ahead of their arrival with a view to cash in on this positive sentiment.

Unfortunately, last year’s festive season did not meet their expectations as buyers stayed away from the market – primarily due to execution delays, an uncertain economic scenario and unattractively high prices. Demonetization also played a key part in the depressed sentiment – not only in the resale market as was at first expected, but in primary sales as well.

Most aspiring home buyers deferred their purchase decisions, preferring to wait until RERA kicked in fully. Though most developers offered compelling discounts and schemes, buyers stuck to their cautious approach during the last festive season.

However, the 2017 festive season has started on an altogether different and far more positive note. While structural reforms by ways of RERA and GST have helped firm up buyer sentiment, developers too have progressively adjusted their business approach in the new era of transparency brought on by GST and RERA, and are geared up to cater to the pent-up demand for homes this year.

These reforms, coupled with various other progressive measures initiated by the Government, have certainly made a big difference for the realty market in this festive season:

  1. RERA and GST address the core issue of transparency: The Government has passed slew of policies and reforms, most importantly the long-awaited Real Estate Regulation and Development (RERA) Act, Goods and Services Tax (GST) and the Benami Properties Act. The overall objectives of RERA are to improve transparency and accountability in the hitherto trust-starved realty sector, protect the interests of home buyers and ensure timely delivery of projects.

On its part, GST has replaced the multiple taxes levied by the Central and State Governments and has effectively been subsumed of all indirect taxes. The improved mechanism of input tax credit (ITC) may well soften the overall impact of taxes on real estate.

  1. Affordable housing leads the way: Housing for all by 2022, the flagship program of the NDA Government, was given a major boost when Union Budget 2017-18 accorded it infrastructure status. Infrastructure status will not only help developers to raise funds at a cheaper rate but also encourage long-term funds from institutions such as insurers and pension funds to invest in this segment.

Taking a realistic view, the Government has extended the deadline for completion period of affordable housing projects to five years from the earlier three years. To boost demand, the Government has introduced attractive interest subsidies on home loans – up to 3% and 4% on home loans of Rs. 9 lakhs and Rs. 12 lakhs respectively – under the Pradhan Mantri Awas Yojna.

Since the affordable housing sector is the most incentivized segment for both developers and end users, developers are today significantly more inclined towards affordable housing projects. Many reputed developers are now launching projects in the affordable segment. In the 1st half of 2017, more than 70% of new launches were of projects with units priced at the Rs. 50 lakh budget range, which is in sync with what most Indian home buyers are looking for.

  1. Rebooted economic environment: With inflation under control and GDP expected to grow at more than 6%, the economy is in a much better shape this year than it was in the last festive season, which was heavily impacted by the unexpected announcement of demonetization. Buoyed by a stable economy and progressive policies, the realty sector attracted $1990 million in institutional investments during the first half of 2017. The residential sector accounted for 54% ($1075 million) of these investments. The renewed interest of institutional investors in this sector underscores the long-term prospects of the residential sector – a fact that industry observers as well as home buyers have duly taken note of, as well.

 

  1. Ample availability of ready-to-move-in supply: Post RERA implementation, developers are in a hurry to finish their under-construction projects and to offload their unsold units instead of launching new projects. Also, ready-to-move apartments with occupation certificates (OCs) are kept out of the ambit of the RERA and GST, making it much easier for builders to market these products. As a result, buyers have a wide choice of ready-to-move-in options. There are currently about seventy thousand ready-to-move-in unsold apartments in tier 1 cities

Also, the existence of ready supply is ensuring that new projects launched during this festive season are offered at very competitive rates. The attractive schemes and discounts which reach highest saturation during the festive period are, of course, added advantages for buyers.

  1. Competitive home loan rates: Home loan interest rates are at their lowest in the last 10 years, and will remain in that territory owing to the generous liquidity prevalent in the market post demonetization. Also, as they compete for bigger shares of the home loan pie, many banks have been rolling out attractive offers like waived processing fees. This has put home buyers in a sweet spot of an ample range of projects to choose from and very attractive financing options at their disposal.

Summing of the festive demand boosters

  • A far more transparent and accountable real estate industry
  • A plethora of ready-to-move-in options
  • Rationally priced under-construction projects covered by the RERA assurance
  • Lucrative schemes from developers
  • Competitive home loan rates

In short, this festive season will be different from the previous one. For developers, this festive season could very well set the ball rolling for the much-awaited revival for the beleaguered residential real estate.

  Anuj Puri, ChairmanAnarock Property Consultants

 

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