Will it or won’t it- This has been a million dollar question asked by several experts and industry watchers over the last couple of years. In case you’re wondering what is being referred to, it is the question of whether Indian real estate will ultimately recover or not. If you’re a keen follower of the economy and market trends, then you’ll already know what has plagued the realty sector in India over the last 3-4 years. Even if you aren’t, here’s a little recap of things that went wrong for the sector before we move to the eventual positives.
Indian real estate received a death blow upon the announcement of demonetization which stopped several funding channels for the sector. This was followed by RERA and then GST. While every sector needs time to adjust to major reforms, these three decisions were highly necessary since they infused some much-needed transparency into the sector while increasing overall accountability of real estate developers and shoring up confidence of buyers and investors. Coming to the residential real estate segment, prices have largely remained flat across major cities while sales figures have improved in patches. The sector has been kept afloat by strong demand for commercial real estate which is drawing sizable global investments from leading institutional players of late.
The liquidity crunch across NBFCs, a major funding channel for the sector, has worsened things and made recovery tougher in spite of several Government measures. Developers now have to deal with a looming cash crunch while the ban on subvention schemes (under which builders paid the home loan interest for customers until possession) has also made things more difficult for them. Yet, the answer to the question of real estate recovery in 2020 is a resounding YES. This is because the signs of progress on the ground are visible and should be heartening for the industry and developers at large.
2020- A year of major recovery for Indian real estate
While growth is on the cards for the Indian real estate sector in 2020, the year will majorly witness the sector recovering steadily and also consolidating in many ways. The Government has come up with a fund of Rs. 25,000 crore for the completion and revival of more than 1,500 projects which have 4.5 lakh units encompassed in them overall. This is a major sign of progress and a decision that will positively impact the sector in 2020. Additionally, there has been considerable progress in resolving the cases of two realty companies that went under, namely Amrapali and Jaypee Infratech.
The prompt and proper handling of these cases will naturally infuse greater trust amongst home buyers as far as the property market is concerned. Tax incentives for home buyers that were previously announced in the Union Budget will impact the sector positively along with changes that have been proposed for the IBC or Insolvency and Bankruptcy Code. The Government has also come out with a slew of other reforms including a cut in GST rates to 1% and 5% for affordable and under-construction units, increase in the rental income threshold for TDS to Rs. 2.4 lakh, zero notional assumption of income on self-occupied second homes and of course, the emphasis on affordable housing under PMAY (Pradhan Mantri Awas Yojana) with interest subsidies as part of its mission of Housing for All by 2022.
These measures coupled with multiple repo rate cuts by the RBI and subsequent reduction in home loan interest rates, could make their impact felt in 2020 as home buyers find it more compelling to invest in property at the moment, particularly when prices have remained at near-similar levels as observed 2-3 years earlier. The key thing to remember is that the Central Government is doing its best to revive Indian real estate and a few measures for stimulating growth are also expected in the upcoming Union Budget for 2020-21. This is because the sector is a major player as far as the Indian economy is concerned and its growth will be vital towards transforming the country into a robust, $5 trillion economy by the year 2025 as per the Government’s mission. Additionally, the emphasis placed by the Government on infrastructure development will continue aiding the realty sector in multifarious ways.
Why Indian real estate will fare better in 2020
As mentioned earlier, the measures taken by the Central Government will impact realty markets more positively this year. The Government has previously scaled up tax deductions on interest repayments to Rs. 3.5 lakh for buyers of affordable homes priced up to Rs. 45 lakh. This should encourage more fence-sitters and first-time homebuyers to enter the market and sales figures may rise accordingly for the first three months of the year as a result. RERA itself has had a positive impact in boosting homebuyer confidence. This gives them greater confidence in tackling a situation where their money gets stuck in a stalled or incomplete residential project.
The amendment to the IBC now seeks to bar individual buyers from approaching insolvency courts against real estate developers. 10% of buyers or 100 buyers, whichever is the lowest threshold, will be required now for approaching insolvency courts. This has now balanced out the legal system, offering ample safeguards for home buyers and developers alike. The alternative investment fund of Rs. 25,000 will soon start transforming the sector through swift completions of several projects in a move that will bring relief to thousands of home buyers and developers alike. The new fund, coupled with previous measures will bring about growth in housing sales this year as per industry experts.
Infrastructural projects, expansion of metro lines, new airports and other connectivity measures will keep boosting several real estate markets in India, all throughout 2020. The continued emphasis on affordable and mid-income housing will keep paying rich dividends for real estate developers, with more biggies venturing into these categories.
Commercial real estate will keep doing well in 2020, backed by huge demand for high-quality or Grade A office space and this will only be aided by the growth of co-working aggregators. The lower corporate tax rate is something that may also boost demand for office space with more companies looking to expand their presence in India. Co-living will be a major contributor towards real estate growth and a new source of earnings for real estate developers as per forecasts for 2020 and the same can be said for student housing. Warehousing is another sector that will contribute handsomely to the margins of leading real estate developers while many new players will enter the above mentioned segments as well.
As they say, Rome wasn’t built in a day. The Indian real estate is out of the woods and a lot has been done by the Government and other authorities to make sure that it stays afloat. The impact of all these measures and regulations will slowly but steadily manifest itself in the form of higher sales and faster recovery of the Indian real estate sector in 2020. Of course, some further incentives and pro-active measures in the upcoming 2020-21 Union Budget will always help! Here’s to a brighter and better 2020 for Indian real estate.
