REALTY LOOKBACK AT 2015 AND OUTLOOK 2016
Being one of the prime contributors towards Indian GDP and employment generation, a lot is always expected out of the real estate sector. This sector alone is responsible for being a user for over 30 allied industries and sectors. As we bid a goodbye to 2015 and gear up for 2016, a lot has changed since the beginning of this year where several major announcements were made for infrastructural developments and the country in general that will highlight realty sector as its backbone. Much was delivered during the course with still some left in pipeline for the next year.
ROLLER COASTER RIDE IN 2015
Year 2015 began quite well riding high on positive market sentiments due to current government’s enthralling victory back in 2014. Since then, a lot was expected out of them to assist this sector by easing the ways doing business thereby boosting the growth nationwide. “Modi led BJP government came strongly into power that led to rise in expectations from them. The start to January 2015 was greatly fuelled when RBI had announced repo rate reduction after one year. The same feat was followed in the next bi-monthly policy review that finally opened the gates for banks to reduce loan rates thereby pulling back the lost demand”, states Mr. Rupesh Gupta, Director, JM Housing.
After RBI’s push in the beginning of the year, budget session was near where industry status was hugely in demand from this sector’s players. Single window clearance system, Land acquisition bill and RERA bill had also started to make rounds as the dreams of next level infrastructure was pretty much on the cards. “Industry status for the realty sector has been long in the wishlist of the players along with a regulatory body at the centre to curb the problems pertaining and bring much needed transparency. First budget by the new government was unable to meet sector’s expectations on this line, but talks are still going on with chances looking bright of its execution by next year. With Smart India Mission underway, it will become crucial to pass these bills and give an industry status to the realty sector soon”, explains Mr. Mukesh Khurana, MD, Rudra Buildwell.
As more and more time was spent in the middle by the government, a series of initiatives were announced and many were implemented. For instance, Swachh Bharat Abhiyan, Black Money Bill, Make In India, Bharat Mala, SEBI’s nod to REITs, Digital India later during the year and massive fund announcement and allocation for infrastructural development across country were few of the hits till then, but the sector saw a major dent in market sentiments in the form of increased service tax from 12.5 to 14 percent. Price of under construction properties across the nation had shot up, adding onto the pressure for the buyers. This was later neutralised by a surprise repo rate cut by RBI. Gradually the government was showing signs of settling down when it completed its first year of being in power in the country. “With the government sitting strong in the middle, then came a big announcement for the country in the form of Smart India Mission. Under this mission, 98 cities were shortlisted for the next level of development, 500 AMRUT cities were declared for urban transformation and Housing For All was announced to meet the housing shortage in the country. An overall outlay of Rs. 48,000 crore was announced for the same and allocation has also commenced. Smart India Mission was the biggest highlight of 2015 which has actually created a platform for upcoming years”, Mr. Vikas Bhasin, MD, Saya Group.
For the performance of this sector, it is imperative that a decent inventory level of units is maintained and prices are practical. But in India, over the last couple of years of slowdown, tier 1 cities saw property prices sky rocketing which looked good from the investors point view but went down as a bane for end users. This gradually resulted in huge inventory pile up of over 50 months in few regions, thus denting the demand. Because of this, 2015 was a year where prices saw a downward trend with customers going missing from the market. “Period from 2006 till late 2008 was a witness to India’s best performance in the realty sector where demand, supply and returns were on its peak. Post global recession, the market till third quarter of this year was almost dried out with investors and end users not showing any signs of interest. Property prices till this year had come down by almost 30-35 percent across major tier 1 cities with huge inventory piling up. This coupled with falling loan rates has given a huge sigh of relief to the customers thereby bringing them back in the market due to decreased cost of properties, ready inventory and future expectations of returns. Thus, 2015 will be regarded as a year of downfall and equally, a comeback of the Indian realty sector”, elucidates Mr. Ashok Gupta, CMD, Ajnara India Ltd.
Highlighting feature of 2015 was undoubtedly the promptness for infrastructural development in the country. It is true that real estate can survive only when there exists a strong infrastructure in the region. Understanding of this need and its conversion to reality is the need of the hour, something that has been made prominently visible this year. For instance, fund allocation for the financial year 2015-16 for NHs was planned at Rs. 81,006.99 crores out of which Rs. 32,518.78 crores have been already spent that constitutes to 1,00,087.02 Kms of National Highway roads spread across the nation. The emergence of Asian Highways in India will act as a step to take India’s infrastructure and real estate on the global map. The work on India-Myanmar-Thailand(IMT) Trilateral Highway is already underway with India to have six Asian Highways (AHs) in near future, out of around 80 AHs to be constructed. Also, recently the government had set aside a total of Rs. 11,654 crore for the transformation of 272 cities and towns in the country, under AMRUT plan. Metro rail network has been catching up pace in tier 1 & 2 cities such as Faridabad, Noida, Jaipur, Chennai and others. Thus, from the infrastructure point of view also, 2015 has been a year which observed a lot of fund allocation but still, lot remains to be provided for 2016 and subsequent years. “Real estate market of a region cannot perform unless there is a strong platform of infrastructure present. The concept of green highways and transit oriented developments has been well accepted in our country which will in future, serve as new concepts of modern day smart development. This year we witnessed a series of announcements for infra upgradation that will help in shaping up the regions in times to come, and as the infrastructure progresses, we will see promotions of tier 2, 3 & 4 cities as well”, avers Mr. Vivek Gupta, Director, Vardhman Estate & Developers (P) Ltd.
We cannot deny the fact that if India alone has to look for its development, then it can take us centuries to develop like other developed nations of today. Thus, the role of foreign investment becomes pretty important in cases like ours, where economy is still in the developing mode. 2015 saw a remarkable turnaround with respect to FDI inflow in India. This very year itself the overall FDI inflow in our country stood at USD 30,254 million till October 2015 in comparison to USD 23,239 million achieved from January to October 2014. Already there is a rise in FDI by over 30 percent in comparison to the last year. Speaking about the construction industry, norms for FDI had been eased to lure foreign investors. For instance, several norms such as conditions regarding bringing $5 million in six months has been removed, area restriction of floor area of 20,000 sq. meters in construction development removed, each phase of construction development project to be considered as separate project for FDI and foreign investor permitted to exit/repatriate income before project completion if a lock-in period of 3 years is met. In such cases, it becomes easy for the investors to enter and settle their businesses. “The easing of FDI norms in the construction and housing sector is sure to leave an endless positive impact on the realty sector of India in general. Although, 100 percent cap for FDI was still there but affordable housing wasn’t getting the direct benefit, which will now be a new beneficiary here. Also, removing of minimum capitalisation amount and area restriction will serve as a huge breather for those planning to invest in India. Overall, the housing sector of our country is ready to receive the fruits of FDI which will reap benefits in near future”, shares Mr. Ankit Aggarwal, CMD, Devika Group.
Last two quarters of every calendar year in Indian real estate is considered to be the highest revenue generators, and most policy based decisions are heard due to parliaments’s monsoon and winter sessions. Monsoon session of the parliament this year was a complete whitewash due to constant roadblocks by the opposition, where Land acquisition bill and RERA bill were to be tabled. A mere 3 percent productivity was achieved during the one month long session. Later, final festive season of the year commencing with the Navratris till post Diwali was observed which resulted in better sales and possession of ready units, in comparison to the last few years. Sentiments were better this time due to prices being on its record low along with ready inventory. Recently, as the winter session began, hopes were high from the current government to deliver what was missed last time. GST and RERA bills became prime concerns, where RERA bill got a nod from cabinet, GST has been just making rounds and rounds with no promise of getting implemented due to reckless attitude of the opposition yet again. Hence, 2015 in this context has been on the receiving end as nothing has moved out of the parliament on a positive note. “From the realty sector’s point of view, this year was quite balanced with several hits and misses. Demand and sentiments were much better this year that paved way for better supply. High inventory levels are not much of a concern when the demand is good, something which was very prominent this year, added with reduced prices of properties along the major tier 1 cities, lowered lending rates and relaxed FDI norms. This year would have been complete had GST, RERA and Land acquisition bills been implemented, as the Smart India Mission will rely heavily on their passage. Also, industry status and single window clearance system has to be executed at pan-India level so that developers’ calls are easily answered. Indian real estate sector is gearing up for a better 2016, but still a lot is to be decided and declared”, concludes Mr. Deepak Kapoor, President CREDAI-Western U.P. & Director, Gulshan Homz.
SMOOTHER 2016 IN SIGHT
2015 was indeed a roller coaster ride for the realty sector of our country as several minor achievements could be observed but nothing concrete was attained. Although, with still a lot left in pipeline, 2016 is sure to be the year of transformation for the Indian realty sector. “After a decent, full of positive sentiments start, there came a road of bumpy ride in the sector where indirectly affecting announcements were made but vitals were still missing. Although, the seeds of today are fruits for tomorrow and we are sure that 2016 will be one such example where all the misses of 2015 such as GST, RERA, Land acquisition bill and industry status for the sector might become the headlines in the New Year”, expresses Mr. Kushagr Ansal, Director, Ansal Housing.
With repo rate presently standing at 6.75 percent, there is still a lot of scope for lending rate reduction by banks in India. Prices are expected to become stagnant and stop the negative slope being brought forward from 2015. Thus, long term investor confidence and end user interest in Indian real estate is expected to enhance as the promise of better returns and lesser pressure on the pockets due to reduced EMIs is certain. “A total of 125 basis points of repo rate was reduced in the calendar year 2015, signalling loan rate reduction by banks. Prices in 2015 had come down to its record low and those buyers who took this as an opportunity have made a perfect decision. The dual benefit of reduced EMIs and lowered prices will work in their favour as prices in 2016 are expected to see an early stagnancy and later in the final quarter, it’s appreciation will begin. Long term investors and end users must make most of this time in order to reap out the highest benefits”, claims Mr. Sushant Mutterja, CMD, Cosmic Group.
Housing for all by 2022 was a major chant of 2015 to help fulfil the cause of providing over 2 crore houses to the country. This had led to the rise of more 1 and 2 BHKs getting constructed across the nation. Projects with high density, not many modern amenities and smaller units are the need of the hour which will open the gates for meeting the demand of affordable housing. “Analysing the market demand dynamics and being socially responsible are extremely important factors to consider while in this business. Providing a roof to everyone is crucial for nation’s HDI and thus, 2016 is ready to see an upsurge of low cost housing with basic amenities made available to the public. State government’s housing schemes aided with affordable housing options from private players will become fairly visible in the year to come”, explains Mr. Vikas Sahani, CMD, Property Guru.
As tier 1 cities saturate on prices and development, tier 2, 3 & 4 cities will be the next den for developers, investors and second home buyers. These cities will be the next to look out for in 2016 as the long term option of development and returns will be better with tier 2, 3 & 4. “As the inventories in tier 1 cities keep piling up and remain unsold, the pressure on developers will begin to mount. 2016 will witness a rise of real estate in tier 2, 3 & 4 cities as capital appreciation, return on investment and better options for buyers will become greatly available. Tier 2 regions will become the biggest focus area for cash starved and newbie developers. At the same time, investors will have more options to choose from”, avers Mr. Sudeep Agrawal, MD, Shri Group.
FDI will be the big ticket for Indian real estate in 2016 as the norms for the same has been relaxed with country’s prime focus being ease of doing business for foreign nationals. “As more and more FDI gets pumped in our country, it will not only bring along funds, but with it different ideas, intellect, concepts, knowledge and manpower which will boost the economy and employment generation in the country. This sector will get into limelight more than others since FDI in this sector will provide benefit to over 30 allied industries and sectors. Therefore, with greater FDI in the realty sector, there will be a much needed push to the affordable housing plans and next level infrastructure in the country”, affirms Mr. Rakesh Yadav, Chairman, Antriksh India.
Heavy duty plans for infrastructural upgradation were already well underway in 2015. Fund allocation had also begun for Smart cities and AMRUT. The dream of superior and world class infrastructure is on the move which will now catch up pace in 2016. “With 98 declared cities gradually submitting their plans of becoming infrastructurally smarter and 272 cities and towns receiving over Rs. 11,000 crore boost from the government, the platform is all set for 2016 to become a year of urban transformation in India. As work on the infrastructure front catches pace, the demand for real estate will run parallel to it. Therefore, it is expected that 2016 will be a very crucial year for the growth of realty sector as well as the economy in general”, says Mr. Amit Chaudhary, MD, Rhythm Ccounty.
A lot of promise, with some execution and even more to be delivered in 2016; the roadmap is well laid for the New Year to become one of the most interesting and promising years of Indian realty sector’s history. “Indian realty sector is taking a lot of positives from 2015 to the next year. With several big announcements from the government this year and gradually things gaining momentum, 2016 is ready to create a turnaround for the sector. Just to make sure that things fall in place as forecasted; few key decisions will have to be taken on priority basis that should include GST, RERA, industry status, single window clearance and Land acquisition bill. Union budget 2016-17 too will play a vital role with Smart India Mission in pipeline. Next year, a lot of FDI is expected to make way into the realty sector as well. This entire process of revival and getting back on track can take about 6-9 months of the coming year while the sales will start picking up from the first quarter of the year itself eventually leading to an upward movement in the sector’s growth graph which might earn the industry status by then”, concludes Mr. Rajesh Goyal, Vice President CREDAI-Western U.P. & MD, RG Group.