Indian real estate has been nearing the end of the down-cycle as many experts state and possibly it is just about to break into a path of recovery once again. This is of course something that was not achieved in a day. Rewind back to the year 2015 and the advent of demonetization and you will get the picture. Plagued by demonetization and its impact, Indian real estate witnessed a slide in its fortunes which was further affected by measures like RERA and GST. However, as they say, whatever happens, happens for the better.
These bold steps taken by the Government finally led to a major clean-up in the sector, eliminating fly-by-night operators and increasing overall accountability of developers, thereby safeguarding consumer interests better. This scaled up overall customer confidence in the market while making it more transparent for investors as well. Additionally, reputed and organized players benefited from this move since they naturally became the preferred choices for customers in terms of housing projects. That was not all; the Government also brought about a steady revival of the sector with its emphasis on affordable housing and interest subsidies and benefits under the PMAY (Pradhan Mantri Awas Yojana) under the mission of Housing for All by 2022. This gave further impetus to the sector while benefits for developers made them foray into this segment. A further cut in GST rates on under-construction properties (ready to move properties attract no GST) and extra tax benefits on affordable housing loans have propelled the sector out of the woods.
With the NBFC crisis creating a liquidity crunch in the sector and stalled projects piling up across various cities, the Government has also announced a stress fund to aid the completion of these projects, thereby bringing relief to innumerable homebuyers. All these measures have definitely brought the market towards greater maturity while heralding its long-term revival after the massive clean-up initially. Going by the latest trends and developments in the Indian real estate space, it would be fair to say that the sector is finally coming out of the woods. Here’s taking a look at some of the positive developments that augur well for the sector in times to come.
Real estate growth witnessed in Chennai
Real estate activity has gained huge momentum in Chennai after 5-6 years as per reports. Commercial real estate is already witnessing a boom throughout the country and the story is no different in Chennai. Absorption of commercial office spaces has touched a whopping 60 lakh sq. ft. in the city and more conventional businesses and firms are now scaling up their presence in Chennai, leading to higher demand. From co-working space providers to IT and ITeS companies along with electronics manufacturing entities like Foxconn and Salcomp, everyone wants a piece of the pie in Chennai. Rentals have increased by 10-15% in the city and this trend is expected to continue for at least 2-3 years as per reports.
Chennai usually witnesses absorption of approximately 45 lakh sq. ft. of office space annually and it has now jumped up exponentially based on studies. There is a positive sentiment in the market after the somewhat subdued market trends for the years 2017 and 2018. Cognizant has leased 6.2 lakh sq. ft. at Ozone Techno Park on the OMR while Infosys has snapped up 2.20 lakh sq. ft. at the Pacifica Tech Park in the same stretch. Accenture has also gone for 2 lakh sq. ft. in the Embassy IT Park located on the Pallavaram Link Road. Experts state that these developments will rub off positively on the residential real estate segment as well, owing to overall positive buying sentiments and the increase in employment. Co-working companies have also invested greatly in the market. Workafella has acquired 1.42 lakh sq. ft. at Teynampet and it is not the only one.
There are now rentals starting from Rs. 45 per sq. ft. and going up to Rs. 110 per sq. ft. on an average. There is better office space available in Chennai and this is helping it grow at par with Hyderabad and Bangalore at the moment. These are the first signs of a return in the property market boom as per experts. In fact, infrastructural developments will also give a leg-up to Chennai’s residential real estate market which could soon be out of the slump.
Bangalore witnesses healthy residential growth
Bangalore continues to remain in the spotlight as one of the most stable markets for residential real estate along with Hyderabad. The IT Capital of the country has been the residential property market which has been the most active over the last couple of years. Overall sales figures of housing units have increased by a whopping 80% in Bangalore for Q1 2019 as compared to the same period in the year 2017. In this period, unsold inventory levels also reduced by approximately 44% as per reports. Developers in the city have become more cautious now with regard to launching fewer new units and instead, are focusing on selling off older projects. This has given a major impetus as far as residential real estate sales volumes are concerned.
Growing demand from customers has also witnessed residential inventory overhang coming down to 15 months by the end of the first quarter of this year as compared to 42 months in the same period in 2017. New supply of housing units has also increased by approximately 39% in this duration as per reports. Indian realty is on the fast track once again and nowhere is this more visible than markets like Bangalore and Hyderabad, particularly in terms of growth in the affordable and mid-income housing segments. Bangalore has benefited from rapid growth in its commercial real estate sector and an increase in disposable incomes of professionals working in the IT and ITeS sectors along with the rise of more new entrepreneurs.
Prices of property have also remained largely competitive and reasonable. As a result, developers have been clearing off stocks by providing enticing discounts and other freebies to buyers. In fact, residential real estate markets are also recovering in other major cities. The MMR (Mumbai Metropolitan Region) witnessed a rise in new launches by close to 80% in this period while the figures were more than 100% for Chennai and Pune respectively as per studies.
Housing sales figures may witness a slight rise for 2019
Experts also forecast slight growth in housing sales volumes for 2019 driven by better consumer sentiments and several pro-active Government measures. Experts estimate that sales figures for residential units in India may go up by around 4% for the calendar year 2019 to approximately 2.58 lakh units. This forecast covers the country’s top 7 cities, namely MMR (Mumbai Metropolitan Region), NCR (National Capital Region), Hyderabad, Kolkata, Bangalore, Pune and Chennai.
Experts also expect steady and consistent growth for all four quarters of calendar year 2019. Sales figures were a lot better in the first half of this year although demand slightly came down in the third quarter. The performance of the real estate sector in India, while slow, is heartening since it is at least on the track towards marginal growth after facing multiple market headwinds in the past.
Several smaller developers have exited the market due to their failure to comply with new regulatory requirements while many have joined hands with bigger and organized players. This has resulted in leading real estate developers increasing their own market share and launching more housing units in the market as per reports. The bigger real estate brands have all posted decent rates of growth in terms of clearing out unsold inventory and new housing sales. Buyer sentiments majorly center on ready to move in housing units even now or housing units which are closer to completion. Bigger players have in fact performed excellently by way of sales and revenue growth.
The announcement of the AIF (Alternative Investment Fund) by the Government to the tune of Rs. 25,000 crore will naturally enable swifter completion of many affordable and mid-income projects that were stuck earlier. First-time homebuyers have also increased in the market owing to additional tax deductions up to Rs. 3.5 lakh annually on the interest component of homes loans lower than Rs. 45 lakh taken by the end of FY2019-20. Student housing and co-living are two categories which have witnessed considerable growth in the real estate sector while commercial real estate continues to prosper across India’s major cities.
All in all, the future looks bright for Indian real estate; it has sizable potential to recover and grow over the next few months, particularly with the affordable and mid-range sectors fueling a major chunk of demand in the market. Additionally, growth in the commercial real estate space will have a positive impact on the residential segment too while emerging sectors like co-living and student housing will continue finding more takers. The sector definitely seems out of the woods but a lot more needs to be done to maintain the growth momentum and spur a complete recovery in the near future.
