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Expect a steady recovery in Indian real estate over the next 18 months

The five-pronged approach by the government comprising of demonetisation, RERA, GST, home loan rate cut and affordable housing push is geared to bring the mojo back into the industry.

Sunil Mishra

As I have described in another article, the last 14 years have been a roller-coaster ride for Indian residential real estate market. The period between 2003 and 2008 was a boom time with prices increasing, almost doubling in some cases.

After a two-year slowdown arising from the global economic crash, 2010-2014 again saw huge supply and prices rising again. The final three to four years of this period have witnessed the dip of the business cycle, with sales having slowed down to half, unsold inventory increasing, and prices remaining flat.

This was also the period when the consumer became increasingly unhappy with the developer community, with a spate of false promises and project delays. The investor community, taking a cue from this, and buoyed by rising equity markets, also voted with their feet on the real estate market.

As per PropTiger’s DataLabs Realty Decoded Report, developers in the top nine cities of India had been together launching 40-45,000 homes (units) in each of the first three quarters of FY17 (Apr 2016-Dec 2016), including in the dreaded third quarter when demonetisation took place.

The first three months of 2017 saw about 51,000 units being launched, possibly on the back of improved sentiment post demonetisation and some to get in before RERA got implemented.

Launches crashed to about 30,000 units in April to June this year, as developers got busy with applying for RERA approvals for existing ongoing projects. RERA has been implemented by the book only in Maharashtra, and hence the pains of RERA will continue to bog down developers in other cities. Hence, launches will continue to be soft in Q2 of FY18 (July-Sep), and possibly even lower than Q1 level of 30,000. After that, launches will follow sales as described below.

Purchase of homes on the other hand had been fairly stable at 50-55,000 in each of the six quarters before the note ban quarter. It’s a well-known fact that after note ban, consumers started waiting for a mythical and misguided 30 percent price correction and this slowed down purchases to about 43,000 units in the October-December 2016 quarter. October 2016 was one of the best months in the past two years, which means that November-December sales fell down to almost 10,000 units per month. As the canard of a huge price fall wore off, sales have recovered in the January-June 2017 period to the 50-55,000 level of earlier.

Now going forward, the five-pronged approach by the government, comprising of demonetisation, RERA, GST, home loan rate cut and affordable housing push, all in the past 10 months, is geared to bring the mojo back into the industry.

These five factors coupled with the reduced real prices of homes and increased affordability will dictate the outlook for the next six months and even the next three to four years. RERA and demonetisation address comprehensively the crisis of consumer confidence developed over the past three to four years.

Consumers buying new homes now are getting what they saw, what was promised to them, paying in white, and in a committed time-frame. We forecast sales in July-September remaining at similar levels of Q1, with Mumbai and Pune increasing while other cities (where RERA is running three months behind) falling a bit.

The third quarter (Oct-Dec) which is also the festive season is going to be the quarter which may be remembered as the turning point, with consumers coming back in droves into the “buy” market. I see anything between 60,000 and 70,000 homes being purchased in this quarter, tempering down to 55,000-65,000 in the final quarter of FY18.

In the next fiscal (Apr 2018-March 2019), there is a good chance that the industry may see 65,000-75,000 units being sold each quarter, with a bump-up in Q3. Hence, sales of homes which hit a seven-year low of 2.1 lakh numbers in FY17 and possibly remaining at that level in FY18 too, will bounce back to the 3 lakh range in FY19.

This will still be a far cry from the investor-driven 4.5 lakh units sold in FY14, but this time around, the demand should comprise a significant portion of solid end-users. In the past four years, lakhs of new entrants into the workforce have moved into the top nine cities, but have been reluctant to buy. Even this segment will enter the market now. As foreign institutional investors and private equity funds start entering the space - after clean-up and with a price increase imminent in FY19 - prices may start rising and domestic retail investors will come back, with prospects for capital appreciation returning to this asset class.

Investors returning in droves of course depend on how well equities are doing and very importantly, when the Indian government is able to bring the GDP growth back on track through a slew of economic reforms.

Even the Asian Development Bank has revised India’s growth from 7.4 percent to 7 percent due to demonetization and GST impact but the government is expected to introduce reforms to revive growth. I am positive on both counts - the Indian government’s actions (with elections around the corner) and the ability of the United Nations and international statesmen helping avoid a North Korean war. It will be time for both real estate and equities to prosper! Let’s cross our fingers and wait for each of the above forecasts to come true! India needs it…India deserves it!

(The writer is Group Chief Strategy Officer of, and
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