After the introduction of sweeping reforms like the Real Estate Regulation & Development Act (RERA), GST (Goods and Services Tax) and the Benami Property act, the real estate has seen a major impact taking into consideration the way developers run their businesses. Moreover, these acts have made the Indian Real estate industry more transparent, more accountant and have furthered the transformation of the sector into a modern age.
Looking forward to the future, we have listed down 5 major trends that will be followed by the Indian Real Estate Sector.
Global capital flow into Indian real estate will increase further
Ranked 4th in developing Asia for FDI inflows as per United Nations World Investment Report of 2016, India has seen the highest level of endorsement and the real estate saw a significantly visible equity investment. The Indian real estate attracted close to a whopping $32 Billion in private equity in 2017 compared to a mere $5.7 Billion equity in 2016.
Though the historic high of 2007 was not reached, it was the second best year despite Brexit and uncertainties around the new US president’s visa-related policies. Despite so many uncertainties, the private equity looked healthy in 2017, all thanks to a rapidly transforming and modernizing economy which has led to the growth of reputation of India as an attractive investment destination. India’s Tier-I cities moved up to the 36th rank in JLL’s 2016 bi-annual Global Real Estate Transparency Index. The changes in Regulatory Framework of India has been a major catalyst in transforming India to a more attractive destination for both Indian and Global investors.
Developers will revamp their business models
The new residential development projects launched were lower than the units sold in the year 2016. With the implementation of RERA, the unprecedented transparency and accountability requirements for developers has led to somewhat increase in consumer confidence.
Other than RERA, the GST and the Benami Property act also made a major impact in how developers run their businesses. Older ways of working were shaken to the chore by demonetization, but it did not have any effect on the self-governing developers. The despaired market watchers have every reason to perk up due to the revamp of business models of the real estate developers.
The Sun Rises on Affordable Housing
The union budget of 2017-18 accorded the infrastructure status to affordable housing. Moreover, the government aims to build 1 crore houses in rural India by 2019. Due to the major revamps in the policy, this segment will receive funding from various sources including External Commercial Borrowing (ECB).
The criteria for the qualification of as affordable housing has been revised from 30 sq. meter to 60 sq. meter carpet area in the four metro and non-metro areas. Owing to demonetization, the price of land is expected to ease in the coming years, especially in far-flung areas around the metros and tier II and tier III cities. The government’s dream of housing by 2022 looks a lot more attainable now.
Office sector transformation
The rollout of the REIT listing and the moving of prominent private equity fund like Blackstone will attract small business investors alike because of their inherent nature of providing regular dividend at relatively low risks. According to experts, REIT has a huge potential in India, with around 229 million sq. the meter of office space currently being REIT complaint. If even 50% of this space is listed in next few years, we could be looking at a total REITs listing worth close to $18.5 Billion. Furthermore, implementation of REITs in India has been continuing since last six-seven years. All major road-blocks/apprehensions have been eliminated. But the issue of 15% DDT payment has kept its implementation non-functional since the last couple of years; this is sure to bear results for the future.
More Industry Consolidation
Lack of financial prudence and lack of sales among several developers has led to an obvious conclusion- consolidation. The ever so crowded real estate sector is on its way to becoming a lot leaner and meaner, with consolidation happening in ways like joint development and joint ventures between landowners and small developers with bigger, better-organized players. Small developers being bought out by larger players, and struggling developers cashing in their land banks by selling them to players with stronger balance sheets and appetite for growth.
Developers and investors will take a plunge into the market while others will prefer to go solo for the time being. Despite everything, consolidation will be the name of the game for the Indian Real Estate over the next five years. Larger investors are expected to peak in financial strength by 2021 and small players will be forced out of the market. Equity investment or the lack of it will play a deciding role.