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Will mega real estate changes in 2017 benefit homebuyers?

The sector went through phases of both uncertainty and hope as both developers and homebuyers struggled to come to terms with a slew of regulatory reforms.

The real estate sector made headlines in 2017. This was primarily on account of three factors – the crackdown on black money/benami transactions began with demonetisation in November 2016. This was followed by the coming into effect of the Real Estate (Regulation and Development) Act 2016 on May 1 that hoped to improve transparency and empower homebuyers and change the way properties are bought and sold in the country. Finally, the roll out of the goods and services tax (GST) regime that came into effect on July 1 and was aimed at boosting transparency in taxes.

Structural reforms and immediate impact

The year 2017 started on a slow note with the sector still reeling under the shock of demonetisation. Demonetisation had a negative impact on both home launches and home sales. In the first couple of quarters following demonetisation, new home launches and demand for homes remained muted across the country. The secondary or the resale market was hit more than the primary market because of the predominance of cash transactions in the resale market. Transactions in the secondary market fell by as much as 50 per cent.

“Demonetisation squeezed liquidity out of developers forcing them to change their business model. Developers began preferring joint development agreement with land owners over outright purchase of land. The positive impact of demonetisation from a home buyer’s point of view was a fall in home loan rates and home prices,” says Sachin Sandhir, Global Managing Director – Emerging Business, RICS

May 1, 2017: Real Estate (Regulation and Development) Act, 2016 (RERA)


On May 1, homebuyers were armed with several new rights specified under the Real Estate (Regulation and Development) Act, 2016 (RERA), including the right to obtain information relating to sanctioned plans, layout plans along with the specifications, approved by the competent authority.

Buyers were also entitled to claim possession of apartment along with completed common areas such as parks, clubs, internal roads etc. But RERA also has a set of responsibilities underlined for homebuyers. Any non-compliance with the decisions of the appellate tribunal is punishable with imprisonment for a term that may extend up to one year or with a fine for each day any default of payments continues. It also mandates that every allottee will have to participate in the formation of an association of allottees and take physical possession of the unit within two months of the builder getting the occupancy certificate. Homebuyers will also have to necessarily register the conveyance deed of the apartment, plot or building.

According to Anuj Puri, Chairman – ANAROCK Property Consultants, the Government’s ambitious Housing for All by 2022 mission received a massive thrust in 2017 with the granting of the very vital infrastructure status to affordable housing. In addition, the definition of affordable housing and houses classified under MIG underwent a series of tweaks to cover a larger buyer base and help developers offload their budget homes inventory.

Overall, 2017 saw the Government making it clear that home buyers will no longer be at the mercy of real estate developers, and putting various measures in place to ensure that housing supply syncs up with demand and pertinent projects are developed. There are doubtlessly some teething troubles – some of them very obvious - in implementing and executing the new policies and reforms. However, they have made a deep impact even now, he said.

Agrees Rohit Gera, managing director, Gera Developments Pvt Ltd and VP Credai Pune Metro, through RERA, the government made delivery to the customer a priority and simultaneously ensured that developers who earlier could launch a project with virtually no capital now require financial strength and capability before entering the business. This led to a cleaning up and weeding out of fly-by-night operators whose sole objective was to prey on hapless home buyers. The introduction of GST will further streamline the supply chain of developers and bring many small-time contractors and vendors into the GST net.

Impact of GST on property market

According to Sandhir, it is difficult to quantify the exact impact of GST on property prices. While developers will be able to avail input credit on goods and services bought and used during the construction process, we will have to see if they will pass this benefit to home buyers. GST is nevertheless expected to benefit affordable housing. The new tax regime is expected to keep real estate costs low for the affordable housing segment, thereby making it cheaper.”

2017 a buyers’ market; limited new launches keep prices in check 

The year also saw limited new projects hit the market as developers’ shifted focus towards completing existing projects, so much so that not many new launches took place even during the festive season.

According to statistics shared by Anarock Property Consultants Pvt Ltd, at 94,000 homes, the number of new units added across seven leading cities in the country over the first three quarters of 2017 dropped by half from a year back. In fact, 97,000 units were launched in the first quarter of 2016, which was higher than that launched in all three quarters of 2017 so far.

Unsold units in top 7 cities of India declined by 8 per cent between the third quarter of 2016 and the third quarter of 2017. This decline was primarily due to restricted new launches amidst the green shoots of sales recovery. The cities in South India recorded a higher decline in unsold inventory as compared to the other cities, primarily due to strict control on new launches and the dominance of end-users in these cities.

Unsold inventory decreased by 22 per cent, 18 per cent, and 16 per cent in Hyderabad, Chennai and Bengaluru respectively between the third quarter of 2016 and the third quarter of 2017. NCR and MMR, which account for around 55 per cent of total unsold units across top 7 cities as of the third quarter of 2017, witnessed a mere 6 per cent decline in unsold units between the third quarter of 2016 and the third quarter of 2017, the report said.

The year 2017 remained a buyers’ market. The presence of a significant inventory of unsold units kept a tight control on average prices, which largely remained range bound between Q3 2016 and Q3 2017. Assessment of average prices for the past 5 years (Q3 2012 to Q3 2017) reveals that Pune, Kolkata, Hyderabad and Bengaluru were the front-runners in capital value appreciation, bucking the trends of larger cities such as MMR and NCR, said the report.

Home sizes were also impacted. After the launch of government initiatives such as the Pradhan Mantri Awas Yojana (PMAY) Urban, developers are now focusing on constructing compact homes. As per ANAROCK research, the average size of new units launched in 2017 has shrunk significantly over the previous year, across the top 7 cities of India. Notably, NCR witnessed the highest reduction of 21 per cent, followed by 15 per cent reduction in Pune, Kolkata and Hyderabad, and 12 per cent in MMR.

The Centre on November 16, 2017, approved the enhancement of the carpet area of houses for the middle income group (MIG) category, under the Pradhan Mantri Awas Yojana – Urban (PMAY-U). Under the MIG-I category, the carpet area of the houses has been enhanced from 90 sq metres to 120 sq metres, while under the MIG-II segment, it has been increased to 150 sq metres from the current 110 sq metre. Under the MIG-I category, a four per cent interest subsidy is provided to the beneficiaries, whose annual income is between Rs six lakh and Rs 12 lakh, on a loan of up to Rs nine lakh. Similarly, under the MIG-II category, the beneficiaries with an annual income of Rs 12 lakh to Rs 18 lakh, get an interest subsidy of three per cent on a loan of up to Rs 12 lakh.

Another report by Liases Foras that tracked the residential market in the second quarter of 2017-2018 said that sales across the eight Tier I cities decreased marginally from 64,881 in the previous quarter to 64,781 units in the current quarter. Hyderabad led sales with an increase of 11 per cent quarter-on-quarter. MMR sold 16,194 units to record a maximum share to overall sales at 24 per cent. Chennai and Kolkata witnessed a steep decline in sales at (--‐13%) and (--‐8%)  quarter on quarter. Also, on a quarter-on-quarter basis, maximum sales growth of 11 per cent was witnessed in the affordable housing segment.

Institutional funds take notice of housing reforms

The government’s emphasis on housing and its efforts to mitigate the risks in the real estate sector by introduction of RERA has not gone unnoticed by institutional funds.

A large number of these investors and funds have made changes to the portfolio allocation strategy allowing investment exposure to the Indian real estate. The pension and private equity funds are investing in commercial assets (office spaces and malls) and also in under-construction residential properties. Not just foreign investors but even domestic players are raising funds to invest in the sector. The interest of private equity players in particular has shifted towards pre-leased office and retail assets, says Shishir Baijal, Chairman and Managing Editor, Knight Frank India.

Data on private equity deals shared by E Y shows that the biggest players this year were Canadian Pension Funds, GIC, Blackstone and Brookfields among others. The total amount invested in real estate was US$ 3,293 million.

“2017 has been the best year for PE investments in real estate sector. From an exits point of view as well it's been very good year. Some large positions in commercial real estate have been built up by big institutional players and we project a significant increase in real estate PE exits via REITS in 2018/2019. Post the sector clean up via regulatory changes like RERA, in 2018, we expect PE investments in real estate to increase significantly over 2017 levels,” says Vivek Soni, Partner and Leader of Private Equity Services, EY.

Commercial real estate: co-working spaces witness momentum

In the office space, strong economic growth continued to generate demand. Vacancy levels in some cities such as Bengaluru, Chennai, Hyderabad and Pune is around 5 per cent to 10 per cent while pan India vacancy was around 14 per cent to 15 per cent. On the supply side, there is a shortage of grade A office space. It is less than half of the current office stock across top eight cities at 280 million sq. ft.

The gap between demand and supply of good quality office space is keeping office rentals strong.  In comparison, retail properties saw significantly less rental value appreciation, especially in the National Capital Region. Mumbai and Bengaluru fared better. While occupier demand continues to rise in the office sector, there was no change in demand in the retail segment, says Sandhir.

Dr Samantak Das, Chief Economist & National Research Director, Knight Frank India Commercial, says that co-working space is witnessing increasing momentum as seen in not just the volumes of space taken up but also the diversity of players that are now queuing up to serve occupiers in this quality starved office space market. In 2018, shrinking availability of quality leased office assets coupled with yields reaching historic lows will push investors to look at alternative segments like retail and warehousing. On the other hand, signing built to suit deals will become imminent for office occupiers.
Vandana Ramnani
first published: Dec 28, 2017 02:54 pm

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