Dec 2019
20

Real estate sector will regain its mojo in 2020

By Rakesh Reddy, Director, Aparna Constructions and Estates Pvt Ltd
735

2019 was a crucial year for real-estate sector. It witnessed the transformative reforms that were introduced over the past few years taking shape. The year also witnessed these reforms laying the foundation for growth. Though marginal, compared to 2018 the sector had gained positive momentum in 2019. The key factors that have bought about the much needed optimism back into the sector were regulatory reforms like RERA, reduction of GST and relaxation of the FDI norms. In fact, the adoption and implementation of RERA has bought about the much-needed formalisation of the sector and boosted homebuyers’ confidence. 

Under RERA, builders will have to provide a timeline for construction and delivery which has been verified by a valid authority. Without approval, builders are not allowed to promote or sell any project. This has effectively weeded out unscrupulous players from the market and allowed only credible builders to flourish. Further, the urbanisation, rising household income and the emergence of affordable housing have also contributed to the steady demand experienced by the sector.

From a city perspective, the year gone-by was mixed year. While the leading real estate markets like Delhi, Mumbai and Kolkata were adversely impacted by the shifting policies, Hyderabad and Bengaluru were stable. In fact, Hyderabad grew quarter on quarter. In the first half of 2019, Hyderabad had clocked a 129% spike in office space development and 47% increase in residential units launched. There was a massive 67% decrease in unsold inventory in the same period. Some of the aspects that have helped Hyderabad were the value-for-money the builders were open to offer.  Hyderabad market offered home buyers with premium amenities even in the mid-range categories. 

Enhanced infrastructure and growth of commercial real estate are also aspects that have contributed to the positivity in the Hyderabad market. Additionally, the quality of life which Hyderabad offers has also aided in the growth of real-estate projects in the city. Further, though there have been temporary market slow-downs, the property prices in Hyderabad have recorded a steady rise over the past decade. As more companies choose to establish their offices in Hyderabad, the city is expected to create an enormous job market and an equally enormous requirement for housing. 

Prognosis for 2020

The real estate sector undoubtedly has a far-reaching impact on India’s overall economic performance. The contribution of the sector is set to grow at a rate of 30% Compound Annual Growth Rate in the next ten years and is expected to have revenues worth $180 billion within a year. The contribution of the housing sector to the GDP is expected to be 11% by the end of 2020. 

The economic stimulus provided by the government like reduction of GST on under-construction and increased allocation of funds towards the development of affordable housing will give the much needed boost  to the sector in the coming year. In fact, the GST on under construction properties will dispel hesitation that is generally associated with these properties. The lowering of the GST and granting of infrastructure status for affordable housing projects will bring property ownership within the reach of a wider audience. The growing job opportunity in cities is also expected to push the consumer demand exponentially for affordable housing as well as the sector at large in 2020. Apart from affordable housing; the favourable eco-system will have a ripple effect on luxury and semi- luxury category also.  While metro cities like Mumbai, Delhi, Chennai and Kolkata may witness a greater acceptance for affordable houses / apartments, Hyderabad will be dominated by affordable / mid-segment homes. 

The allocation of Rs.10000 crore funding for completion of ongoing housing projects will also impact the sector positively. The interest shown by the government to revive the sector will have a ripple effect. It will be instrumental in attracting outside investors, institutions and private capital players into India real-estate market. 2020 will also witness these players coming forward and investing in the sector.  These funds will aid the completion of approximately 3.5 lakh affordable and middle-income housing units. The coming year will also notice more and more players opting for REIT (Real Estate Investment Trust) to fund their expansion or growth plans in the commercial and retail segments.  

While the recent policy reforms will have positive implications for the real estate sector, there will be short-term challenges during the transition. It is important that the government lays the groundwork to provide a strong impetus and address these challenges as well so that the sector can grow at a consistent pace. Some of the aspects that the government needs to take into consideration are granting of infrastructure status, implementation of single window clearance and revision of the income tax slab. Granting infrastructure status to the sector will project a significant fillip to growth in the industry. 

Streamlining approval process with Single Window Clearance is another area that can leave a positive impact on the sector. Single Window Clearance will ensure project approvals to be processed more quickly, resulting in reduced construction costs, thereby substantially reducing property costs. Furthermore, a revision of the income tax slab during the upcoming budget will also be of great benefit. 

The revised income tax slabs will enhance the ability of the salaried class to invest in real estate. Expanding the availability of income tax deductions for home buyers can incentivise new buyers and widen the market opportunity. Further, monetary policies changes like changes in the repo rate by the Reserve Bank of India can also bring the mojo back into the sector. Lowering of the EMIs on home loans, as well as reduction of the debt repayment burden on builders will also aid the sector significantly.  Ease of financing will translate into increased sales, new project launches and a rejuvenated economy at large.

About Author

Rakesh Reddy Director, Aparna Constructions and Estates Pvt Ltd
Articles 4
Updated: 20 Dec 2019
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