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Reformed realty sector to ride out rough road
The year 2017 could well go down as one of the most painful for the bruised
real estate and housing sector, reeling under the short-term disruptive impact
of a series of reforms. But then, riding high on these landmark reforms, the
regulated and organised realty is set to ride out the rough terrain to emerge as
a healthy and sustainable asset class in the medium to long run.
The agony of the real estate sector was particularly reflected in the worst-hit
residential real estate. The long delays in completing projects and large-scale
delivery defaults badly shattered the confidence and trust of home buyers, who
were at war with developers and fighting it out in the courts -- which saw a few
developers landing in jail.
In the wake of all this, home buyers took a back seat, especially refraining
from buying under-construction housing units and thereby badly hitting sales.
According to industry statistics, there were about 685,000 unsold units across
seven major cities till September this year. The high unsold inventory, together
with the burden of complying with RERA (Real Estate Regulatory Act) led to a big
slump in the launch of new units, though home buyers did pick up ready-to-move
dwelling units as they were assured of the safety of their investment.
In view of RERA squeezing funds for residential properties, many developers took
to commercial real estate, especially as investors preferred this segment due to
better capital appreciation and good returns, particularly in pre-leased
properties. Investors also showed keen interest in the retail sector, with
national and international brands entering into newer destinations in search of
organised mall space. Global PE fund Blackstone invested in a number of malls.
Total retail supply, retailers' expansion plans and investments indicate healthy
retail growth in emerging cities.
Despite being a year of hardships, 2017 may well be termed as the year of
reforms aimed at removing regulatory hurdles and paving the way for the sector's
growth. These progressive policies brought in transparency, which was reflected
in the substantial improvement in India's rankings in JLL's Global Real Estate
Transparency Index. Major structural reforms and changes in FDI norms made
Indian real estate much more attractive to domestic and foreign investors, with
a 70 per cent increase in FDI in construction as a percentage of the total FDI
over last three years.
The landmark RERA reform empowered and protected consumers against cheating by
unscrupulous property developers. Several of its stringent provisions are not
only deterrent but punitive in nature to ensure a fair deal to consumers in
terms of price, quality and timely delivery of property -- besides fast-track
redressal of their grievances.
Home buyers got a further protective umbrella with the Mumbai High Court ruling
that RERA will be applicable to ongoing projects as envisaged in the model
Central Act, nullifying the dilution of some provisions by a few states and in
turn protecting the interests of home buyers.
Besides RERA, another big reform that was undertaken this year was the Goods and
Services Tax (GST). Currently applicable to under-construction properties, it is
aimed at doing away with multiple taxes and checking double taxation, resulting
in the benefit of cost reduction which developers are required to pass on to
To give full benefit of GST to consumers, the government is now extending it
beyond the construction stage to final constructed buildings.
The Benami Property Act, aided by demonetisation, together with restrictions on
cash transactions, to a large extent rid real estate of black money (responsible
for the artificial spurt in prices), making property more affordable. In fact,
all the government's policies -- such as according infrastructure status to
affordable housing and PPPs for affordable housing -- were all directed at
promoting this mass segment to achieve the aim of "Housing for All".
The Housing and Urban Affairs Ministry approved the construction of 112,000
additional affordable houses for the urban poor over and above the 3,076,000
houses sanctioned earlier. That affordable housing was the flavour of the season
was clearly evident from the fact that 62 per cent of all new launches in H1
2017 were in the affordable category (less than Rs 4 million price tag), with
the trend of "compact homes" catching up.
This year's budget further provided a booster to the sector. Granting
infrastructure status to affordable housing and abolition of the FIPB
requirement were significant policy initiatives to help the capital-starved
The other notable measures included provision of additional refinance of Rs
20,000 crore (over $3 billion) for the National Housing Bank (NHB), hike in
housing outlay from Rs 15,000 crore to Rs 23,000 crore and allocation of Rs
396,000 crore for infrastructure development.
The pro-consumer budget took several other far-reaching initiatives, including
increase in personal income tax limit with additional benefit in tax slabs,
long-term capital gains tax benefits on housing, enhancing the scope of the
Credit-Linked Subsidy Scheme (CLSS) under the Pradhan Mantri Awas Yojana (PMAY)
by extending the loan tenure from 15 to 20 years and replacing built-up area
with carpet area as qualifying criteria for benefits of the PMAY scheme. This
scheme has now been further extended beyond the EWS/LIG segment to include the
Spurred by the positive sentiment generated by continuous structural reforms,
expected improvement in the economic and employment scenario and tapering off of
the disruptive impact of RERA and GST, in the months ahead, the real estate and
housing sector is headed for consolidation, with a new eco-system marked by
transparency and corporate governance.
TAGS: real estate sector
, realty sector 2018
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