These trends will shape – or reshape – the Indian real estate sector in 2017 and beyond:
Global capital flow into Indian real estate will increase further
India is ranked fourth in developing Asia for FDI inflows as per the World Investment Report 2016 by the United Nations Conference for Trade and Development. That is endorsement at the highest levels – and real estate saw equity investment on a very visible return journey to India last year. Indian real estate has attracted $32 billion in private equity so far. The global capital flow into Indian real estate in 2016 stood at $5.7 billion.
Though the historic high of 2007 (in terms of total PE inflows) was not breached, last year proved to be the second-best year so far. Despite Brexit and uncertainty around the new US President’s outsourcing and visa-related policies, private equity activity also looks healthy in 2017 – thanks to a strengthening and modernising economy, and the growing reputation of India as an attractive investment destination.
Thanks to changes in its regulatory framework, India is now way more attractive to both global and Indian investors. Increased consolidation and transparency – and the launch of REITs (Real Estate Investment Trusts) this year – will further whet their appetites for getting a piece of the Indian real estate pie.
Developers will revamp their business models
Throughout 2016, the number of new residential project launches was lower than units sold. With all states staring at the approaching deadline to implement their versions of the Real Estate Regulation & Development Act (RERA), most of them will definitely fall in line. This landmark law will enforce hitherto unprecedented transparency and accountability requirements for developers into the system, and do a lot to increase consumer confidence. Consumer activism, which has already been making news in recent times, will increase in distressed ongoing projects.
And it’s not only RERA that the Indian real estate sector anticipates with bated breath.
The Goods and Services Tax (GST) and the Benami Property Act will also have a major impact on how many developers run their businesses. Demonetisation shook up the older ways of working, but did not affect self-governing developers with the right products targeted at the working masses. The rest have realised it is time now to revamp their existing business models if they want to remain in business at all. Market watchers who had despaired of the Indian real estate market ever shedding its tainted image have every reason to perk up now.
Currently, the residential property market is dominated by end-users – speculative investors are making a beeline out of real estate as an investment category. Residential demand is expected to pick up only towards the end of 2017 – but the recovery will be sustainable and based on much sounder market fundamentals than transient sentiment.
The commercial office space sector will get a strong shot in the arm with REITs. Real Estate Investment Trusts will have an important and long-term impact on developers and present them with the choice of either ‘corporatising’ or risking take-over by their bigger and better-organised counterparts. The pressure from funding agencies will simply be too strong to ignore.
Corporate developers like Tata, Godrej, L&T, Bharti, Mahindra, etc., will acquire more projects, and corporate houses like Birla are gearing up for their maiden innings in real estate development. Institutional funding will increase.
The sun rises on affordable housing
Affordable housing in India is finally set to get the much-coveted infrastructure status. One crore houses are to be built in rural India by 2019, and this vital segment will now see cheaper sources of finance – including external commercial borrowings (ECBs). Re-financing of housing loans by National Housing Banks (NHBs) can give a further boost to the sector.
A new Credit Linked Subsidy Scheme (CLSS) for the mid-income group with a provision of Rs 1,000 crore in 2017-18 was announced even before Budget 2017-18. Extension of tenure of loans under the CLSS of Pradhan Mantri Awas Yojana (PMAY) was increased from 15 to 20 years, and the Budget also increased allocation to PMAY from Rs 15,000 crore to Rs 23,000 crore in the rural areas.
The qualifying criteria for affordable housing were also revised to 30 sq. m. and 60 sq. m. on carpet rather than saleable area in the four main metros and non-metros respectively. This effectively increases the size of affordable housing market across India. Moreover, the demonetization of high-value currency notes will cause land prices to ease in the next few years – especially in far-flung areas around Indian metros and the Tier-II and Tier-III cities. The government’s dream of Housing for All by 2022 appears a lot more attainable now.
Co-working: More of India Inc. will move into ‘hybrid’ spaces
Co-working spaces are popping up across Indian metros as well as Tier-II cities, providing start-ups with flexible working options at affordable rents. At last count, there were more than 100 operators in this space across India, though there is still very limited supply of co-working spaces available. However, this segment is slowly but surely moving into boom mode across India, given the many advantages that such spaces offer:
*Employee motivation and retention
*Firms focused on agility who house their innovation teams in co-working spaces can induce a quicker learning curve to integrate them into the entrepreneurial ecosystem
*The perfect option for companies who need their client servicing teams close to their respective client sites in locations with low office vacancy
Certain co-working operators will prefer leasing out parts of or the entire areas of their co-working office spaces ‘anchor tenant’ corporates. In other words, co-working operators and corporates will move into a ‘hybrid’ sort of space and increasingly rely on each other.
Source*: The Economic Times