The real estate sector is one of the most important contributors to India’s economic development. It is the second largest employer and accounts for a significant proportion of investment demand and fixed asset creation, along with extensive forward and backward linkages to many allied sectors.
The residential segment, in particular, is of crucial importance given that property accounts for a significant proportion of an average Indian household’s asset ownership. Thus, the need to incentivise home ownership through a calibrated policy approach, both on the demand and supply sides, cannot be overstated.
The government has been focusing on both these aspects for the past few years through a slew of initiatives. These have in turn led to greater formalisation of the sector, better protection and information dissemination for homebuyers and an increase in dominance of developers with superior track record of execution and financial stability.
Implementation of the Real Estate (Regulation and Development) Act, the Insolvency and Bankruptcy Code and initiatives such as Pradhan Mantri Awas Yojana (PMAY), for both rural and urban areas, have strengthened the regulatory backbone of the sector. Of course, over the past 3-4 years, there has been a sectoral slowdown with rise in unsold inventory across cities and liquidity challenges for small and medium developers.
However, measures to increase liquidity have been instituted to ensure the deadlines of stalled projects are met. While there was an immediate impact of the COVID-19 outbreak in 2020, launch and sales activity picked up sharply by the end of last year and has continued in 2021.
Frequently Asked Questions
A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.
There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.
Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.
For instance, despite the pandemic, launches in 2020 were largely similar to the average launches over 2016-2018 and launches in 2021 are expected to exceed last year’s figure. The strong recovery momentum implies that now is a great time to invest in residential assets. The key reasons driving the investment attractiveness are as follows:
Implementation of RERA in 2016 and creation of a proper framework to ensure project standards, funding mechanisms and timely disposal of cases have generated trust and added stability to the market. According to a recent study by the Boston Consulting Group (BCG) and Omidyar Network, 70 percent consumers are aware of RERA’s status as a regulator and 76 percent of these consumers have stated that they will buy only RERA-registered properties.
While an average Indian has always shown a keen interest in property, RERA has gone a step ahead and given confidence to buyers to invest in residential property knowing that their interests will be safeguarded. In fact, 64 percent developers are highly satisfied with RERA in terms of ensuring accountability of builders and increasing transparency.
Affordable housing, as a segment, has witnessed major traction over the last few years, largely due to the government’s policy push and has gradually attracted institutional capital as well. Tax deductions on home loan interest, credit-linked subsidy schemes, tax holidays for developers of affordable housing projects have provided the necessary incentives and policy support. Low ticket prices, better financing terms and various amenities provided by developers have kept demand resilient for such projects.
Over the past five odd years, there have been some mild corrections in the pricing of residential properties in most large cities due to multiple factors like inventory overhang, regulatory changes and discounts from developers. This rise in affordability has been a major draw for average homebuyers. Keeping with a broader recovery in consumer sentiments and a further uptick in launch and sales by the end of 2021, in, we can expect capital value appreciation in select micro markets.
There has been a perceptible increase in the demand for ready-to-move-in apartments in recent years with homebuyers willing to pay a premium for finished projects. This has led to a gradual decline in unsold inventory in top cities and this is a trend that is likely to continue going forward. On the other hand, developers have been offering tailored payment plans including no pre-EMI and payment protection schemes, along with price discounts of 4-7 percent on under-construction projects. This has provided a greater impetus to residential sales in recent quarters, despite the pandemic.
Home loan rates are at the lowest for more than a decade (6.75 percent currently on a loan of Rs 30 lakh or less), and some banks such as SBI have waived off the loan processing charges. The gap between the cost of financing an apartment and the cost of renting one in some micromarkets and for mid-segment projects has narrowed, thereby incentivising home purchases.
Reduction of stamp duty charges in Maharashtra and Karnataka (for affordable housing) have not only driven growth in transactions, and boosted the overall sentiment. In its recent Budget, West Bengal announced cuts in stamp duty and circle rates, following the footsteps of the other two states.
Another key stimulus measure aimed at reviving the residential sector was the increase in the differential between the agreement value and circle rate of a property to 20 percent from 10 percent earlier. This provided tax relief to developers and homebuyers on primary sale of residential units of up to Rs 2 crore when the transaction was conducted at a price 20 percent below the circle rate.
Structural changes brought about by remote working trends have highlighted the need to own one’s own apartment that is spacious and environmentally friendly. WFH has forced families to spend greater hours at home and many are now are looking for spacious homes that have greater focus on health and safety.
The demand for plotted villas and bungalows have also been on an uptrend across the peripheries of major cities. Locations such as Whitefield (Bengaluru), Gurugram (Delhi NCR), Shilaj (Ahmedabad), Joka (Kolkata), have been witnessing higher interest amongst Millennial homebuyers with rising affordability are also driving the housing demand. Millennials are resorting to home buying at an early age (late 20s to early 30s) unlike their predecessors, owing to improved affordability, faster rise in incomes, promising job market outlook, and the fondness to enjoy superior lifestyle.
Since most employees have been working from home, dedicated space for office activities at home is the new norm. Many consumers have been upgrading their homes due to this requirement and developers have been introducing innovations such as additional space as a study room or kids’ play area in their projects. The average size of apartments was on a decline in cities over the last few years due to rise in prices, especially in prime urban areas. However, the pandemic could reverse this trend and larger homes in relatively affordable suburban locations could be a major attraction going forward.
Ultimately, residential transactions are intrinsically related to the trust and confidence of homebuyers since it involves a huge investment. Implementation of the Special Window for Affordable and Mid Income Housing (SWAMIH) Fund to provide last mile funding to stalled projects is a crucial initiative that is helping restart projects and deliver completed homes to numerous homebuyers. As more projects are delivered and funding challenges are addressed, it is likely to have positive spillover effects on broader market sentiments.In short, the residential sector is currently a buyers' market and is likely to remain so in the near future. This is certainly the right time to buy residential property and we advocate prospective homebuyers to make investments into residential assets. However, consumers are also advised to do complete due diligence on the developer and plan their finances carefully while making the investments.