New residential project launches would get impacted in the first quarter of the financial year due to the implementation of new rules (GST rollout RERA), so the demand for available inventory and ready-to-move-in homes will, therefore, increase. This is the perfect time to buy property, Surendra Hiranandani, Chairman & Managing Director, House of Hiranandani said in an interview to Moneycontrol’s Sarbajeet K Sen.
It has been several months since demonetisation. What has been the impact on real estate?
Demonetisation is undoubtedly a landmark event in the history of our economy. While it has led to short-term disruption for around three months, it indicates a favorable change for the real estate sector.
The primary residential market and projects undertaken by credible and reputed builders are not affected. Transactions in these markets are broadly financed through legal channels of banks and housing finance institutions providing home loans to buyers. Projects in cities where there is a cash component will only be affected.
In terms of correction in land prices, farmers today are unlikely to part with their holdings at lower prices. They have immense holding capacity and patience to see this through and will sell only when the price matches their expectations. Alternatively, they could factor in tax payments to increase prices in the near term.
How do you think residential real estate would move in 2017-18?
We anticipate 2017-18 to be favorable to home buyers on the back of various policy initiatives undertaken by the government. The policy initiatives such as 100 Smart cities, Housing for All by 2022 and AMRUT provide huge opportunities for the real estate sector to grow and mature efficiently keeping customers as priority. These initiatives will also attract more investors from across the globe as there is an increased confidence and optimism in the sector due to the ‘transparency’ factor.
This year will see consolidation in the industry on the back of the changing economic scenario that is likely to weed out devious real estate developers. The focus will be on creating products for varied segments of buyers instead of only catering to the luxury market. Demonetisation has not affected established players much as transactions take place only through the legal route. The commercial real estate sector has also not seen a major shake-up as they cater to office/industrial leasing where all transactions are done through banking channels.
We will also see the demand shift from secondary market to primary construction owing to erosion of cash-linked sales. This will lead to better inventory utilisation and ensure launch of new projects in the second half of the year.
Owing to low returns, investing in bonds and fixed deposits may take a back seat in the near future as customers would prefer parking their money in real estate as it will give them better return on investments. The official economy will see a positive growth in the following months, elevating the purchasing power of the consumer, encouraging the consumers to invest more.
How do you think real estate prices will move from here on?
Since 2010 there has been a lot of pain in the market where developers sold properties at low prices and then were hit by severe inflation, resulting in a large number of projects remaining incomplete. Construction and approval costs spiraled out of control. This was coupled with very high interest rates as borrowings are essential for construction projects. Most projects sold in that period resulted in heavy losses on the balance sheets of developers.
Home prices are expected to pick up in the first quarter of 2017-18 as the overall economy improves after demonetisation. Also, with Real Estate Regulation Act (RERA), GST and other regulatory changes coming into effect in the coming months there is bound to be better transparency and credibility in the sector.
However, new launches would get impacted in the first quarter of the financial year due to the implementation of these rules, so the demand for available inventory and ready-to-move-in homes will therefore increase. The rise in demand will ensure that prices remain firm and start the ascent once again in good quality projects. It is the perfect time to buy property today.
At the current real estate prices, the margins of developers are very slim. Due to inflation, some projects are even being sold at a net loss. There is no chance of price negotiations in new projects without developers incurring losses. From a consumer perspective, this is a good time to purchase property.
Other than the possibility of higher home price, what other factors should buyers keep in mind while firming up their purchase decision?
Post demonetisation, interest rates have reduced significantly on the back of huge inflow of deposits in the banking system making home loans cheaper and creating a conducive atmosphere for end-users. The various reforms undertaken by the government will address most of the concerns faced by home buyers in future. The increased transparency and credibility in the sector will make it more attractive for consumes to invest in real estate.
Home buyers must use this opportunity and invest in properties that are available at attractive prices. They can purchase homes of their choice by doing full cheque payment. Those looking to buy resale properties can now avail higher finance through banks as the entire payment will happen through cheque.
Once the market stabilizes after a few months we anticipate a sharp recovery in both the primary and secondary residential markets.
What is the outlook for commercial real estate?
The demand for commercial real estate across the country, especially in the south, is firm and getting stronger. There is a sustained rise in rentals in grade A&B buildings in major metropolitan cities in India. Going by the present trend, good connectivity and existing infrastructure in the area will be determinants for the demand, rents and capital values.
The new norms in commercial space leasing is likely to boost demand, as firms that historically bought space would prefer leasing to accommodate changing needs.
We continue to be optimistic on commercial real estate and are exploring opportunities in South India as we have significant presence there. Apart from that we are looking at Pune as well and will develop them if we find enough value in it.
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