Things are looking up for real estate sector with proposed implementations of Real Estate Regulatory Act and Goods & Services Tax along with lower home loan interest rate regime. The feel good factor is also being supported through fiscal benefits offered to taxpayers and homebuyers in the Union Budget. The sentiment is expected to turn positive and instill confidence among homebuyers, which is extremely important for the revival of the industry.
The Prime Minister has already announced a New Year’s gift to home buyers in the budget segment both in rural and urban areas in the form of interest subvention for home loans which will go a long way to realise the government’s dream of ‘Housing for All by 2022.
The Union Budget’s gift of infrastructure status to affordable housing is a game-changing move that will open up more institutional sources for developers to raise funds at competitive price. The budget has also given leeway to developers to build bigger houses and extended the time of completion of affordable housing projects from 3 years to 5 years. I strongly believe these moves will encourage leading real estate players to enter this segment going forward thus creating a lot of potential for institutional funds to participate.
A lot of churning will happen in the times to come because of the implementation of various policy changes and it is important to see how developers recalibrate their businesses to the changing environment and whether buyers capitalise the opportunity of the various reforms and change their status quo position of “wait and watch”.
In the first half of 2017, the residential sector is expected to be largely muted and there would be pressure on prices. With consumers in a wait and watch mode, demand could be subdued due to a mind-set that property prices could undergo reduction along with a substantial lowering of home loan interest rates. Since buying a house is a discretionary need –a need that can be postponed, it is anybody’s guess that the real estate sector will be the slowest to recover from the impact of demonetisation vis-à-vis other sectors.
The office market is expected to face challenges to maintain the prevailing pace in the following year. This could be due to shortage of ‘A’ Grade office space, the geo-political risk of a probable reduction in outsourcing from the US, structural changes in domestic economy and top technology companies reducing their growth targets. However, with the advent of GST, the warehousing sector will see a consolidation thereby bringing efficiency in the entire system.
The after effects of demonetisation coupled with legislations like the RERA, GST bill and Benami Transactions (Prohibition) Amendment Act, 2016, will further increase transparency and reliability within the sector. Furthermore, this will also see a boost in institutional funds flowing into the sector at competitive rates, which will enable the sector to come out of the woods.