Will Real Estate Sector Bounce Back to Its Full Glory in 2018?
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The real estate sector has witnessed a number of policy changes over the last few years. The Government’s thrust towards urban development and ‘Housing for All’ has been visible through its increased focus on luring additional capital, on increasing transparency and on boosting the real estate sector across all its key stakeholders through its policy initiatives.
Role of Government
In 2014, the focus of the Government was on increasing capital to the sector with the introduction of REITs and amendments to the FDI Policy allowing 100% through the construction route. In 2015, policy focused on urban development and the housing agenda with the introduction of the Smart Cities Mission and the PMAY with the aim to build 20 million affordable homes by 2022. In 2016, the Government’s focus seemed to be on increasing transparency and reducing the prevalence of the shadow economy with amendments to the Benami Transactions Act and the Demonetization initiative. And lastly, 2017 saw the real estate sector undergo a complete overhaul with the introduction of RERA and the GST, and giving infrastructure status to affordable housing.
Transformation in Real Estate Industry
For real estate companies across segments, the last one year has been particularly transformative. The operating framework that was seemingly outmoded in its outlook was banished almost overnight, making way for the new regime to prevail. Companies had to gear up to change their working models, organization structures, understand how to get their vendors to comply, ensure their employees were trained in line with the new regime, appease their customers who now had a lot of protection under the Act, while still running a seemingly successful business.
Challenging Times Ahead
As you can imagine, this has not been an easy feat and it is somewhat commendable to those players who have continued to thrive and survive during these challenging times. For the others, consolidations and joint arrangements will continue to be the modus operandi.
As the real estate sector metamorphosis into a tightly controlled and regulated industry, the onward journey will continue to see real estate companies looking inwards to build enhanced delivery capabilities while keeping a keen eye on newer business models that emerge and their own 5-year vision for their enterprises.
Real estate businesses will focus on using newer technologies at the site and planning level, employing effective cashflow management techniques, get better at project management and quality control, and overall take a more structured approach towards development. This is how real estate businesses around the world have flourished and attracted larger pools of investment capital.
New Framework Required
At the market level, the new operating framework is expected to lure wary consumers back into the system. Recent reports from Anarock have indicated that 160,000 units were sold from Q1-Q3 2017 and that unit sales exceeded new launches. The trend of limited new launches and disposing the excess inventory will continue through the course of 2018, where a marginal sales recovery is expected in the residential market. It continues to be a buyers’ market after all. For those who struggle to sell, innovative leasing models might help meet some cashflow requirements in the interim.
Incentivizing the Homebuyers
The Government’s thrust on the ‘Housing for All’ agenda supported by the NHB’s initiatives such as the CLSS scheme to include a larger portion of the home-buying segments has been an encouraging step to bring in additional purchasers and fence sitters. Declining interest rates have also been a key contributor to this improved sentiment. Affordable housing will continue to be the focus of policy and industry through the next few years, as that is where the real housing shortfall and need exists.
New Business Models
The commercial market is expected to continue to garner traction through 2018 and newer business models such as co-working spaces will continue to see some interest. Real estate companies will start getting more sophisticated about their leasing arrangements and their leasing strategies to attract the right tenant mix. This will prove to be a key differentiator.
Logistics, warehousing, student housing, co-sharing, senior living and leasing will be additional business models that real estate companies will explore as the market dynamic continues to evolve.
With increased transparency and accountability, as well as the policy thrust towards infrastructure, urban development and affordable housing, 2018 should see renewed interest from investors and consumers alike. We also hope for the launch of the first REIT to really give the sector a boost.