The first quarter of 2017 is good going and the rest likely to be an exciting year for the realty sector. Authorities and builders both have joined hands to take the sector out of the slowdown that has been alarming over the sector from many years. 2017 is expected to bring winds of change that will facilitate the sector recover its past magnificence and restore its perspective. However, considering the changing times, there are major trends in Indian Real Estate in 2017 that will change the game.
Worldwide capital flow into Indian real estate will rise further
As per the World Investment Report of 2016 by United Nations Conference on Trade and Development, India ranked fourth in Asia. That is approval at the uppermost levels – realty sector experienced equity investment on a very observable return journey to India in 2016. Real Estate of India has attracted 32 billion dollars in private equity. The overall capital flow into the real estate of India in last year stood at 5.7 billion dollars.
In the face of Brexit and insecurity around the new US President’s outsourcing and visa-related issues, private equity movement also looks strong in 2017 – because of a strengthening and modernizing the financial system, and the rising reputation of India as a most preferred investment zone in the Asia.
As a result of changes in its regulatory structure, India is now way more attractive to both international and local investors. Amplified consolidation and transparency – and the implementation of REITs (Real Estate Investment Trusts) this year – will more sharpen their hunger for getting a piece of the Real Estate India cake.
Developers will revamp their business structures
All the way through 2016, the number of residential developments launches was lower than units sold. Real Estate Regulation & Development Act (RERA) will put into effect hitherto unprecedented transparency and responsibility requirements for builders into the system, and achieve a lot to boost the confidence of consumers.
The GST and the Benami Property Act will also have a huge impact on how many builders run their big businesses. Demonetization completely changed the previous working style but did not affect independent builders with the exact products targeted at the working masses. The rest have understood it is time now to restore their current business structure if they want to sustain in the market.
At this time, residential property segment is ruled by end users – rough investors are making a beeline out of the property as an investment option. The demand for residential property is expected to rise only towards the end of this year – but the recovery will be sustainable and anchored in much sounder market basics than transient sentiment.
Huge potential in affordable housing
Affordable housing is finally ready to get the much desirable infrastructure category. Approx 1 Crore homes are to be built in rural part of India in the next two years, and this huge segment will now see low-priced sources of finance – as well as external commercial borrowings. Re-financing of home loans by National Housing Banks (NHBs) can award an extra boost to the real estate sector.
For the mid-income group, a new Credit Linked Subsidy Scheme backed with the fund of Rs. 1,000 Crore was announced even before Budget 2017-18. Expansion of term of loans under the CLSS of Pradhan Mantri Awas Yojana (PMAY) was increased to 20 years which was previously for 15 years, and the Budget also increased the share to Pradhan Mantri Awas Yojana from Rs 15,000 crore to Rs 23,000 crore in the rural areas.
The criteria to qualify for affordable homes were also revised to 30 sq. m. and 60 sq. m. on carpet area in place of saleable area in the four main metros and non-metros correspondingly. This efficiently increases the size of the affordable housing market in India. As well as, the demonetization of 500 and 1000 notes will cause land prices at lower levels in the next few years – particularly in remote areas around Indian metros. The Central Government’s initiative of Housing for All by 2022 appears a lot more achievable now.
Commercial Rea Estate sector transformation: From REIT to complete
REITs will be a magnet for institutional and smaller investors equally because of their inbuilt nature to offer regular dividends at comparatively low risk.
Smaller investors are particularly energized at this new and easier investment opportunity for the reason that:
- Indian REITs will choose to invest in commercial space developments – particularly the highest quality or Grade-A properties – because of the higher rental yields in this asset class and
- Only 20% of an Indian REIT’s duty can be invested in development, which is the riskiest feature. The rest 80% of a REIT’s assets must be invested in income -producing the property.
The potential for REIT in India is very much, with approx 229 million sq. ft. of commercial spaces at present being REIT obedient. Even though 50% of this space is registered in the next few years, we are looking at a total REIT listing worth $18.5 billion. In addition, India’s supply of Grade A commercial property is increasing, with REITs acting as a reliable growth channel.