Affordable housing, REITs keep the oil burning for Indian real estate

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In November 2016, demonetization came as a wake-up call for the Indian real estate sector. As inquiries, walk-ins and sales started drying up in the run up to the New Year, the first half of 2017 was expected to be largely muted. Buyers had deferred their purchase decisions and were waiting for the government to clear the air on various policy initiatives.

The Union Budget for 2017-18 and other policy initiatives undertaken last year showcased that relief was around the corner for home buyers. Thanks to regulatory reforms such as Real Estate Regulatory Act (RERA) and Benami Transactions Act, the outlook on the Indian real estate has been turning positive from the global investors’ perspective.

Post the changes in the regulatory framework, the real estate sector has witnessed substantial investments in the sector. According to Venture Intelligence, the sector attracted 19 investments with a total value of $3.41 billion during January-March 2017, compared with $1.25 billion through 18 transactions during January-March 2016. Interestingly, residential projects bagged the highest number of deals in the first quarter of 2017.

Another major boost is that the Affordable Housing sector has been granted the ‘Infrastructure’ status, thus renewing the Modi government’s vision of Housing for All by 2022. In 2016 itself, many big names in the space like Mahindra Lifespace, Tata Housing, White Projects etc were planning to launch or had launched projects in this segment. This month, the Confederation of Real Estate Developers of India (CREDAI) announced an ambitious scheme of creating 250 affordable housing projects across India.

As per the latest Economic Survey, there is a shortage of nearly 20 million homes in India. With the government betting big on affordable housing, we will see more real estate players entering this segment thanks to incentives such as permission to complete projects in five years rather than three and keeping unsold inventory without attracting any income tax liability for up to one year after receiving the completion certificate. Also, the National Housing Bank (NHB) will refinance individual housing loans of about Rs 20,000 crore in 2017-18.

Interestingly, NHB is also working on a complete revamp of its residential housing index or Residex and is likely to come up with the revamped version in three years and cover 45 cities. It is also working on new indices such as rental index and building & construction material index.

According to PropEquity’s ‘India Residential Real Estate Update -Q1, 2017’, the launch of new houses in India during Q1 of 2017 has declined over 19% in eight key cities, including Gurugram and Mumbai. The fall is largely attributed to the developers anticipating a dip in demand post demonetization. Interestingly, demonetization did not seem to have hit realty prices as RBI data shows that the prices actually increased during the period. The all India House Price Index (HPI) increased by 2.3% from 234.9 for second quarter of 2016-17 to 240.2 in Q3 (October to December 2016) of 2016-17 as per provisional figures.

Increased transparency by banning cash transactions of Rs 3 lakh and above, political stability, the likely launch of Real Estate Investment Trusts (REITs) this year, approval for the GST Bill, the ease of doing business are some of the developments favouring the Indian real estate sector. We are also likely to see more consolidation in the space with foreign companies seeking to forge alliances and joint ventures in India, with multinational and APAC companies seeking to aggressively expand here, especially the commercial space, according to the CBRE 2017 Asia Pacific Occupier Survey report.

However, we still have a long way to go. In the light of recent developments, it looks like attempts are being made to bring in some amount of regularization to this unregulated (real estate) sector. This should help in building up consumers’ trust in real estate investments and this should lead to an upward trend during the year ahead.

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