With general elections 2019 underway, are homebuyers and private equity investors waiting for the final outcome to make their first move? Will property prices shoot up suddenly after elections or will they correct further? These are some questions bothering both buyers and investors.
One thing is clear though - homebuyers are continuing to scout and firm up deals even during elections for ready-to-move-in properties, especially if they find a unit which they can 'touch and feel' and are able to drive a hard bargain.
As for property prices, experts say that they have already corrected by almost 30 percent and are expected to remain stable going forward.
"A combination of bottomed-out property prices, low interest rates and a return of buyer confidence can create the perfect environment for recovery - and even a bull run. If the incoming government is able to keep interest rates low and employment generation high, it will provide the platform for a far more stable and investment-friendly real estate market,"they say.
2014 versus 2019
The key factors that affected the real estate sector leading up to the 2014 polls were political uncertainty, unsold inventory, absorption and interest rates while REIT and Real Estate (Regulation and Development) Bill were yet to see the light of day.
Liquidity and disruptive regulatory reforms are issues affecting the real estate sector in 2019. The sector, which traditionally has relied on the banking system for debt financing, has been adversely affected due to the overall stress in the banking sector.
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As per an analysis by ICRA, the funding gap was filled by NBFCs and HFCs but here too liquidity squeeze has adversely impacted the lending capacity of NBFCs from the third quarter of the financial year 2019 onwards. Consequently, the average cost of fund has increased by 50-200 bps depending on the borrower profile; in some instances, new loan sanctions have been deferred or delayed. Home loan disbursements have also been affected. These developments have mainly hit the smaller developers as the organised players have shown more resilience in mobilising debt financing.
ANAROCK data suggests that 2014 (the year of the last general elections) saw the maximum launches and absorption across the top seven cities, with nearly 5.45 lakh units launched during the year, and nearly 3.43 lakh units sold. The previous year witnessed fewer launches (approximately 4.6 lakh units) and lower sales.
The fact that a party had come to power with a clear majority had raised optimism, and improved sentiment resulting in both sales and new launches picking up. However, with the spate of regulatory reforms that followed – RERA, GST and REITs becoming a reality, not to mention demonetisation, new launches and sale numbers declined year-on-year.
"Each new policy announced by the current government brought its own kind of disruption to real estate, and the sector has not yet recovered completely from the ensuing confusion. Thus, despite a stable government in power, reformatory changes with indubitably favourable long-term implications dealt severe blows to the real estate sector in the short-term. Their long-term benefits will accrue only with the continuity of their enforcement by this or the next Government," said Anuj Puri, Chairman - ANAROCK Property Consultants.
Today, the market is going through a progressive cycle despite disruptions caused by the regulatory framework. The consumer's decision to buy a property is not too much dependent on who will emerge victorious as was the case last time. It is more dependent on the current economic cycle, said Pankaj Kapoor of Liases Foras, adding if you are scouting for a house and find a ready-to-move-in-one that suits your pocket, go and sign the dotted line.
Buyers should also remember that this is the time when builders too focus on selling their unsold stock for enhancing liquidity and buyers can do well with some bit of hard bargaining to drive home a good price, he said.
Real estate inventory and absorption
Kapoor also pointed out that between 2009 to 2014, 10 lakh units were sold and from 2014 to 2019, as many as 12 lakh units have been sold which means there is 20 percent improvement in overall absorption.
The current unsold inventory sits at around 9.45 lakh units and new launches have increased by 87 percent.
"We require 1.8 crore homes for the solving the housing shortage in urban India. We have only 9.45 lakh homes that are ready right now in top eight cities. Even if we take into account the Tier-2 cities, the unsold inventory is close to 14 lakh units. This compared to 1.8 crore homes is only a fraction. Inventory has to grow 10 times to fulfil the objective of Housing for All. The concern right now is absorption which is now gradually improving. Sales have improved by 10 percent. This should improve by 250 percent for this inventory to sustain," he said.
The real estate projects that are actually selling in the market, therefore are of two types – ready to-move-in and commercial properties by corporate branded developers.
The institutional investor community is keenly looking at the outcome of general elections. There is funding waiting in the sidelines to be deployed, much of it that was stalled post the NBFC crisis, said Anckur Srivasttava, Chairman, GenReal Advisers.
Local real estate buying has not been affected by the elections. Speculators are out of the market. and it is only end-users who are scouting for best bargains, that too with RERA registered developers, and those who have a track record of delivering projects on time.
Smaller investors should consider the possibility of investing in REITs going forward as commercial rents are only expected to go up, he said.
According to data provided by ANAROCK Research, 2019 will continue to see commercial real estate supply gain momentum on the back of vastly increased interest from PE players who are actively pumping in funds into this segment. The commercial segment saw a total PE inflow of nearly $2.8 bn in 2018, up from $2.20 bn in 2017. Analysis of PE trends over the last few years indicate that the commercial segment saw total PE inflows of nearly $7.4 bn between 2015 and 2018. In the same period, the residential sector drew just $2.9 bn. This clearly reflects the interest of PE players – both global and domestic.
Expectations going forward
The agenda for the new government should be to put in place more evolved regulatory mechanisms that is indicative of market maturity. It should look at ensuring that the regulatory mechanisms to have more teeth and that a single window mechanism is in place.
Abhay Upadhyay, president, Forum For People's Collective Efforts and member, Central Advisory Council, RERA, Ministry of Housing and Urban Affairs, Govt of India, said the government that takes over should work on confidence building measures to improve trust among homebuyers and strengthen the existing regulatory mechanisms.
"Despite RERA coming into force, there are still some homebuyers who are not confident to buy into a RERA registered project due to lack of stringent enforcement by authorities. There has to be proper implementation of this legislation and dilutions should not be the norm. There needs to be enhanced competition in the market – this would rationalize property prices to a large extent," he said.
Developers hope that whichever party comes to power, should work towards making the sector more dynamic as it is the one of the largest employment generator. "A single window mechanism should be put in place so that all approvals are received on time. Authorities should be made more accountable so that there are no delays on account of approvals being delayed. If possible, authorities too should be brought under the ambit of RERA," said Praveen Jain, CMD, Tulip Infratech Pvt Ltd.
Some developers also hope that the affordable housing segment will continue to witness traction with government support like grant of infrastructure status, various central and state government schemes and tax email@example.com