The year 2017 revolutionised Indian real estate in ways more than one. With multiple regulations coming into effect in 2017, the real estate sector witnessed a roller-coaster ride in the last twelve months. Read on for details.
We all know the historical importance of 1947 for Indian independence and 1991 for the Indian Economy Liberalisation. One such revolutionary year for the Indian real estate was 2017. Many years down the lane, 2017 will be looked upon as the year that transformed Indian real estate. 2017 was an eventful year for the real estate market, as it witnessed various government reforms. Some of these included infrastructure status to affordable housing, RERA (Real Estate Regulatory Authority), GST (Goods & Service Tax) and infrastructure status to logistics.
The year started with the recovery from demonetization. Liquidity being imperative for the working capital of construction, operations was affected. Moreover, immediate financing and extended credit facility was stalled for a long time. Demonetization brought in the much needed discipline in the economy and the real estate sector.
Budget 2017-18 had a special reservation for the housing industry, as infrastructure status was granted to affordable housing. It indicated a strong foothold by the Indian government to achieve “Housing for all by 2022”. Owing to the importance of affordable housing, government furthermore incentivised this segment by extending loan tenure under Credit-Linked Subsidy Scheme from 15 to 20 years, increasing the carpet area under MIG-I and MIG-II category to 120 and 150 sq meters respectively and availability of additional funding such as ECB (External Commercial Borrowing), FDI (Foreign Direct Investment) and debt-financing at lucrative rates. As a result, affordable housing was the major growth driver in 2017, recording a Y-O-Y growth of 27% in the number of units launched in the month of October.
Real Estate Regulatory Authority (RERA) Act, 2016 saw the day of light in the month of May 2017, with the primary aim to regulate the real estate market of India. RERA is regarded as a customer centric legislation, where developers as well as brokers will be more accountable for the houses they provide. The crux of RERA is the website which provides transparency and confidence among various stakeholders of the real estate market. Any discrepancy between the home buyers and developers will be handled through a proper redressal platform setup under RERA. MahaRERA has been proactive in addressing the issues of home buyers as well as developers by announcing various rulings in the favour of real estate ethics. However, there are few states that have not yet notified their respective RERAs and some are still working on the website. Goods and Service Tax (GST) came into effect from the month of July 2017. Under GST, the effective tax rate was pegged at 12% with full input tax credit. Stamp duty and registration charges were not subsumed. Ready to move-in properties were outside the ambit of GST, which lead to the surge in the demand for completed projects. There were few short-term glitches in terms of multiple state registration and accounting of ITC (Input Tax Credit). The Anti-Profiteering Authority has been setup by GST council to ensure that the developers transfer benefits of ITC to home buyers. Near the closing months of the year, there were few talks for reducing GST or subsuming registration charges as well as stamp duty under GST.
During the regulatory reforms of RERA and GST, RBI (Reserve Bank of India) cut the interest rate by 25 basis points to 6%. Many banks followed suit and the prevailing attractive home loan rates along with flexible payment plans and other attractive offers introduced by developers during the festival months coupled with restricted new supply addition, had led to a steady decline in the unsold inventory. Also, government has started turning on the heat of Benami assets under the The Benami Transactions (Prohibition) Amendment Act, 2016. Off late, there has been news of linking Aadhar with property transactions, to further track down benami properties and digitalise land records and transactions.
With various structural reforms in place, the investment in Indian real estate market crossed US$ 4 billion in 2017. Investment classes such as warehousing and commercial properties witnessed an uptick as compared to the previous year. Warehousing marked an uptick due to the recent grant of infrastructure status to logistics. The vacancies in commercial properties were less in the cities of Mumbai and Bangalore. Due to the considerable demand of commercial properties, many investors are even looking at opportunities of Greenfield development of office spaces. Retail real estate as well as hospitality sector had also enticed real estate investors in 2017. In terms of residential, affordable housing took the lead, with various private equity and financial institutes parking their investment in this segment. HDFC Capital and HDFC Mutual Fund have raised US$ 550 million and Rs 3500 crore respectively, specifically for affordable housing in India.
Outlook for 2018
2017 had witnessed growing interest in digital assets such as bitcoin. Similar trend is expected in 2018 too. Real estate would see interest as well as investment in emerging real estate asset classes such as data centres, senior living, student housing, etc. Moreover, we can expect the 1st listing in I-REITs (Indian Real Estate Investment Trusts) during the first half of 2018. For home buyers, it seems to be a good time to enter into a transaction for buying a home, as the market has witnessed price correction (as much as 5% correction in some micro markets) plus interest rate for housing loan is relatively low.
2018 is expected to be the year in which the structural reforms of the government would be yielding returns. Real estate prices are expected to be efficient, owing to good governance and transparency. So, 2018 is expected to infuse positive sentiments among all stakeholders of the real estate market.