Year 2017 has been a roller coaster ride for real estate sector. Major policy changes by the government had its impact on real estate sector for bad and good. The Indian real estate market is expected to touch US$ 180 billion by 2020. It’s time to review the major events of 2017 and upcoming changes that the sector hope to see in 2018.
Real estate prices actually shot up across the country as a result of demonetisation (2016). With demonetisation in place there was a further delay in ongoing real estate projects, due to massive cash crunch. Though the industry faced tough time during demonetisation, the positive impact cannot be ignored. Demonetisation paved the way for a cleaner and more transparent real estate industry for times to come.
With path-breaking reforms like RERA, GST and PMAY, the realty sector showed signs of revival.
RERA seeks to standardise the real estate practice across the country. There have been initial hiccups which halted sales / launches of projects, going forward RERA will bring transparency & lower prices in the long run. GST, India’s biggest tax reform that came into implementation this year. Based on “One Nation, One Market, One Tax” principle, GST subsumes central excise, service tax, VAT and other local levies to create a uniform market. As per GST all properties under construction will be charged at 12 percent of the property value, excluding the stamp duty and registration charges. GST applicable to the purchase of homes in under-construction projects caused home buyers to either buy into completed projects or hold onto their purchase decisions.
Keeping in mind the need to give the residential sector a boost, affordable housing was given the infrastructure status, bringing the country closer to realising the Housing for All mission by 2022. The Government of India took a number of steps to make affordable house available to everyone. Affordable housing has a high rate of absorption, which makes it a profitable business. There is an immense potential for this category in tier 2 cities and periphery of metros as land is easily available and the investor community is enthusiastic about investing here. The State Governments, too, have been proactively working towards attracting investment by enabling friendly policy environment and large-scale infrastructure developments.
Pradhan Mantri Awas Yojana (PMAY) was launched with an aim to provide affordable housing to urban poor. One of the benefits that PMAY brought with it was that of a subsidy. A buyer who buys a home under PMAY would be get a subsidy up to Rs. 2.6 lac from the central government. However, a lot is yet to be done from the demand side & incentivize the builders for them to proactively contribute in this segment.
Overall the year 2017 was a mixed bag for real estate sector. With affordable housing & PMAY topping the class of developments, year 2018 looks bright.
Year Ahead – 2018
“Year 2018 could be the year of Delivery”. India’s real estate market is poised for growth in the medium-to-long term on the back of higher transparency and further consolidation, with reforms like RERA & GST unveiled by the government last year. Developers would be focussing on the timely delivery of their projects & it is expected that the property prices will also remain flexible.
There has been a clear shift in preference amongst homebuyers for ready-to-move-in homes and the delivery binge in 2018 could drive up prices. However, this doesn’t take away from the fact that with rationalisation of GST, prices in newly developed projects will also come down and with strict RERA norms, delivery of homes in a time-bound manner will be an incentive for homebuyers.
Residential real estate to find favour with investors. Clearly after the recent update in PMAY, affordable housing would be on a rise next year as well. Besides helping in clearing the unsold stock, PMAY updation would also encourage the developers to launch new projects, which in turn would boost the economy, GDP growth and employment opportunities. Government has been pushing affordable housing to achieve their goal of Housing for All 2022, and slowly funds are flowing into the affordable housing segment.
As the residential market is expected to improve the commercial real estate too will gradually pick up as business activity improves. With updations in the regulatory framework, India is expected to attract both global and Indian investors. Increased consolidation and transparency – and the launch of REITs (Real Estate Investment Trusts) in 2017 has increased their interest for getting a piece of the Indian real estate pie.
With rising purchasing power, growing aspirations, rapid urbanization, government’s intervention to provide easy loans, and so on, the housing sector in India is anticipated to register a strong growth in the coming years. The Budget 2018 is expected to give direction to real estate sector with tax benefits and more reforms in the housing sector.