At the end of the first half of 2018, the Indian housing sector is displaying signs of resilience and appears set on the road to recovery. Though steep increases in property prices is still a far-fetched scenario, prices have begun to stabilise in most markets. Investment activity remains muted and speculative forces are largely contained . About 90 per cent of real estate transactions currently are end-user driven. Potential buyers should make the most of the current scenario instead of waiting on the sidelines for prices to correct further.
Policy changes giving confidence to stakeholders:
Both domestic and international institutional investors are drawing confidence from the recent policy overhaul in the Indian real estate industry. The Real Estate (Regulation and Development) Act, 2016 (RERA), demonetisation
and the Goods and Services Tax (GST) have all contributed to a compression in housing demand in the short run. But they are together contributing to greater transparency and formalisation in the long run. Every real estate project now needs to be registered with RERA
to ensure timely delivery. This step has boosted buyers’ confidence in both domestic and NRI (non-resident Indian) markets. With RERA
stipulating strict punitive action in case of business malpractices, many smaller developers are selling out to larger and more organised players. This will eventually result in a healthy consolidation and cleansing of the market.
International investors betting big on India: In the first quarter of 2018, over Rs 86 billion worth of international capital was invested in the Indian housing industry, which amounts to a spurt of more than 100 per cent over the past 12 months. International investors are pouring capital into Indian real estate at an unprecedented rate. For the first time in the recent past, fund inflows into the housing market have surpassed the inflows in other segments such as commercial, logistics and retail. Interestingly, investors are not just looking for debt-based deals, but also actively scouting for equity deals with reputed developers. International investors are also putting their capital into the affordable housing segment, as it is emerging as the next sunrise segment owing to high demand.
Demand for smaller units surging:
Across markets such as Delhi-NCR, Mumbai, Hyderabad and Bengaluru, buyers are showing a marked preference for smaller residential units such as studio apartments, 1-BHKs and 2-BHKs. Today a 2-BHK unit with a built-up area of around 900 sq. ft. is seen as an ideal fit for a family of four. Developers are ramping up supply in response to the growing demand for smaller units. Since they are operating on wafer-thin profit margins, making their offerings more affordable by reducing the built-up area makes more business sense than jacking up prices.
Technology playing a part in sales:
In the transaction space, a composite model that combines an on-the-ground sales force with the latest technologies is being adopted. To believe that real estate can be sold entirely over a curated e-commerce platform is still a figment of the imagination. Property purchase is one of the biggest transactions that a person undertakes during his lifetime, hence it is unlikely that technology can completely replace physical presence. At the same time, technology is beginning to play an increasingly important role in the transaction cycle. It is playing a crucial part already in property search and discovery. Online booking too is gaining currency. A part of this change can be attributed to growing internet penetration and digitisation. RERA, and the growing formalisation of the sector, too are driving this change.
Tier II cities hold potential: Tier II markets hold tremendous potential, as will become apparent soon. Infrastructure upgrades and growing job opportunities will drive housing demand in such tier II destinations as Lucknow, Patna, Cochin, and several others. These markets are on course to catch up with their tier one peers over the next 5-10 years.
Next, let us turn to some of the important trends that we have witnessed in the country's leading real estate markets.
Gurugram: This market is now displaying signs of resilience. Buyer interest is on the upswing in locations such as Dwarka Expressway and Golf Course Road. A key development that has contributed to this is the clearance of the legal hurdle that was holding up completion of the last stretch of Dwarka Expressway.
Noida: High inventory over-hang continues to be an issue here. Sector 150 is emerging as the new sunrise location here.
Mumbai Metropolitan Region: Affordable housing is picking up in the western suburbs of Andheri, Kandivali and Bandra. Developers are reducing the size of their apartments to match demand. The hunt for more economical units is prompting buyers to move to suburbs such as Thane and Navi Mumbai.
Hyderabad: Sentiment remains strong across the IT/ITeS belt, which includes the central and western parts of the city.
Bengaluru: Growing commercial activity and improved job opportunity are driving demand in India's tech hub.
Chennai: Buoyant IT/ITeS and manufacturing sectors are the major drivers of the Chennai residential market. Micromarkets such as Pallikaranai, Old Mahabalipuram Road, Perumbakkam, Porur and East Coast Road (ECR) are witnessing good transaction volumes.
Kolkata: Demand is on the upswing in the northern and southern peripheries of Rajarhat New Town and Tollygunj.
Pune: New launches are mostly happening on the outskirts of the city. Pimpri-Chinchwad Municipal Corporation (PCMC) is emerging fast on buyers’ radars.
What all this means for you:
The real estate market will bottom out in the near future. Prices will remain controlled in most cities for the next few months. With ambiguities around RERA
getting resolved, new launches have started to gain momentum in several markets. However, many markets still suffer from high inventory overhang. So, developers will focus more on delivery of existing projects rather than new launches for some time.
All this means that it will continue to be a buyer’s market in the near future, and she will continue to enjoy strong bargaining power. However, upward price movement can be expected over the next one year. Buyers need to shed their reluctance and take advantage of the current favourable environment while its last. As inventory overhang reduces and prices begin to rise, developers may not entertain demands for price discounts, freebies, and favourable payment options. This is a good time for investors, too, to enter the markets. But they should pick their investments after a lot of due diligence on location and project quality. Only those having a long investment horizon should enter the current market.
The writer is co-founder and managing director, 360 Realtors