The bygone year will be well-remembered as a watershed year defining the future course for the real-estate sector as well as for buyers. During the year, the sector exuded the signs of revival while learning the ropes to tread amidst the massive changes in the regulatory and tax environment—driven by RERA and GST Acts—that explicitly impacted the whole way the sector used to operate.
In 2018, around 2.5 lakh homes were sold marking an increase of around 15% over the preceding year. The large-scale initiatives in the affordable housing space contributed quite aggressively to the overall numbers. Transactions in prime markets like the National Capital Region (NCR) and the Mumbai Metropolitan Region (MMR) were largely fuelled by the affordable housing projects bolstered by financial incentives under the Pradhan Mantri Awas Yojana (PMAY) and Credit Linked Subsidy Scheme (CLSS).
Meanwhile, the teething troubles experienced by developers looked to be treated well by growing consumer confidence resulting in consumption of long-standing inventory. The market, of course, consolidated at a macro level, paving way for corporatisation in the sector otherwise plagued by fragile systems and processes.
Meanwhile, banks got more cautious for lending money to developers after RBI placing the real-estate business in the “high-risk” category, owing to declining margins and rising NPAs (Non-performing assets). This is evident with the fact that the money lent in 2013 which was about 68% dropped to just 17% in 2016. The liquidity crisis in the NBFC sector too exacerbated the situation.
At the same time, the other financing channels such as pension funds, private equity and foreign direct investment (FDI) apparently capitalised the opportunity of investing in the market testing the bottom. It is estimated that these institutional funding sources infused $5-6 billion in the sector in 2018.
However, these channels are meant only for the well-organised, large projects following global standards. The scenario has led under-prepared developers struggle hard to raise funds for their projects. In a way, the current business environment calls for utmost transparency and professionalism making it almost an imperative.
The growth story in the commercial real estate sector, on the other hand, continued on the back of India’s vibrant economic outlook. The leasing transactions in the H12018 rose by more than 50% and more than 8 million square feet space was leased out during this period.
While a majority of growth in this sector was driven by technology and co-working spaces, the other industries viz. banking, financial services and insurance (BFSI) as well as retail also contributed a sizeable chunk.
The demand for Grade-A office space in the Tier-I cities continued to be robust indeed. As per International Monetary Fund (IMF) projections, India’s GDP is slated to register 7.4% growth, and therefore the demand for real estate would further go up. Therefore the CII’s estimates look to be realistic when it says that year 2020 would surpass all the past records of real estate consumption in the country.
As told to The Sunday Guardian