JOIN USThe year 2016 began with mixed reactions from the realty sector towards the Real Estate Regulation and Development Act (RERA) followed by the Goods and Service Tax (GST) Bill seeing light of the day. GST aims at elimination of dual taxations and at creating a hassle-free home buying experience.
The demonetisation of Rs 500 and Rs 1000 notes alone created chaos not just in the realty sector, but across all industries. The secondary real estate market suffered a severe blow along with markets driven by business clusters that heavily indulged in cash transactions.
The year resonated with customers’ voices across the country, as a number of legal cases were filed and justice served. This was a good sign as errant developers across country were penalised for misleading home buyers. This led to an increase in home buyers’ confidence and trust in the system, which is of paramount importance for the sector’s growth. As a result, the year has witnessed developers shifting their focus from project launches to project deliveries and adhering to timelines.
On absolute growth parameters, the year witnessed subdued sales numbers. There were a handful of new project launches and of the ones launched, affordable homes were the clear focus for developers. While few launched new projects, many redesigned existing ones. The year also witnessed a large number of innovative offers designed to attract home buyers. In all, it was an action-packed year from the regulatory point of view. Here is our outlook for the possibilities in 2017:
End user driven markets to flourish
Demonetisation may have created a big lull, but end user driven markets like
Bengaluru, Pune, Hyderabad, Chennai etc. did not feel too much of a pinch. These markets will continue their steady growth as people will realise that cashless markets would not see much of a dip in prices. Hence, the demand will pick up significantly from March 2017 onwards.
Softening of loan interest rates
With the over capitalisation of banks, they will be forced to reduce lending rates for home loans which could be hovering at around 7%, and that would be a great
impetus for the housing sector.
Growth of affordable housing
It is expected that there could be further subsidies/incentives for affordable,
sub-Rs 50 lakh homes owing to affordable housing schemes. These could include regulated home loan interest rates, waiver of certain taxes etc.This will give a big boost to the affordable housing sector which is seeing a huge shortfall, and the demand for it is unending. Developers would continue their focus on this category and any addition to inventory will be across this segment only.
Increase in property prices
Against all odds, the property market will experience an increase in prices due to various factors. Diminishing inventory (as noted by a 51% drop in new launches in 2016) will result in demand-supply imbalance, thereby increasing cost.
Subdued sales over the last two years did not allow any significant price movement, but rising input costs of construction and interest costs will put pressure on the
developers.
Hence, an increase in prices in 2017 is inevitable. The rise could be up to 20% as well, especially in markets that are primarily end user driven, in cashless economies and with organised developers.
Marked improvement in urban infrastructure
It is estimated that 40% of country’s population will be living in urban areas by 2030. Thus, there is a need for improved urban infrastructure, which is being addressed by the government.
Programmes such as Housing for all by 2022 Scheme, Smart Cities Mission, Swachh Bharat Mission etc. aim at creating more urban centres which are at par with other global cities. Thus, we shall witness the rise of more urban clusters and better infrastructure.
Return of home buyer confidence
RERA is loaded with pro-home buyer clauses which will tremendously boost their confidence. And with GST, ease of doing business and excess taxes would be in check, thereby easing costs. As mentioned earlier, in 2016, a number of legal cases were ruled in favour of the home buyer, which again reinstates their faith in the system. With these, market sentiments are bound to improve.
Project delays
Whether we like it or not, the year will witness project delays. Demonetisation has caused loss of significant working hours as reduced liquidity forced many construction workers out of their jobs. Established players will manage to meet their deadlines despite this setback, but for small-time developers, it will be an uphill task.
Hence, it can be confidently said that 2017 will be an active and fruitful year for the sector. The long lull will finally start breaking by March-April and sales will pick up momentum. Also, by then, impact of all major actions of 2016 will be felt and home buyers will be convinced of stability in prices and offerings in the market.
Advice to home buyer
If you are a home buyer in an end user driven market such as Bengaluru, Pune, Hyderabad and Chennai, perhaps, it is an opportune time for you to explore your options, as the market will have lucrative offers, and you can bargain a good deal. In these markets, the wait-and-watch stance might prove dearer.
But, remember to choose your developer wisely. Developers with healthy track record, systematic and organised governance (look for their ISO certifications that indicate their governance standards), good construction quality and healthy construction pace should be preferred.
The year 2016 laid foundation stones for a strong, transparent and ethical industry. Introduction of RERA, GST and demonetisation — all have paved way for metamorphosis of the sector as this would lead to eradication of unfair players, consolidation and strengthening of the sector. In medium to long term, the sector is set to be absolutely transparent and regain trust of its most important stakeholders – home buyers.
(Pratik K Mehta is MD & Vinay K Mehta is ED, Unishire)