Realty Remains a Viable Investment Option
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The Indian real estate sector is emerging out of the doldrums it had been caught up in since the 2008 global financial crisis. Numerous experts and reports have indicated how the sector may be looking up, after weathering numerous storms and challenges that came since.
While the growth has been tepid, it has been doing better than property sector elsewhere in the world, such as in the Middle East.
According to data from the National Housing Bank, property prices saw an average increase of just 7.50per cent and 5.75per cent in Mumbai and Bengaluru respectively, between June, 2013 and September, 2017. Meanwhile, in Delhi, the prices fell -0.70per cent during the same period. Homebuyers, investors and brokers faced distress as their money was locked up in the delayed projects. This had led to the real estate sector losing its credibility and mutual funds replacing it as a safer investment option.
A report by a global property consultant showed that from 2010, 78per cent of the new residential launches had failed.
In 2018, the sector began to experience a revival, aided by the various reform measures of the government, such as demonetisation, enactment of the Real Estate Regulatory Act (RERA) and the Goods and Services Tax (GST). According to Anarock’s ‘Indian Residential Real Estate Consumer Sentiment Survey’, this had led to a rise in the demand and supply of houses. Buyers and investors began to give precedence to the real estate sector over other asset classes, namely stocks and mutual funds, gold, and FDs.
The current observable trends of the sector indicate that despite losing some of its allure, real estate continues to be seen as a viable investment.
Global Capital Inflows and Growth
The first quarter of the year saw the sector regaining its lost mojo as it witnessed high participation from foreign investors through whom it raised a record $2.5 billion. Global property consultant Cushman & Wakefield termed it the highest first quarter inflows in over a decade. According to the Indian Brand Equity Foundation (IBEF), the Indian real estate sector is expected to see a humongous growth by 2030 with a market size of USD 1 trillion from USD 120 billion in 2017 and is expected to contribute to 13per cent of the country’s GDP by 2025.
Rising Demand for Housing
It is not without reason the government constantly emphasizes its agenda to provide ‘housing for all’, with India facing a shortage of close to 20 million units in 2012. This shortage is expected to heighten, with the demand for residential spaces rising to 30 million by 2022. A greater proportion of demand comes from the underprivileged.
The IBEF data shows a record 6.8 million houses being sanctioned up to December 2018 under the government’s housing for all programme i.e. Pradhan Mantri Awas Yojana (PMAY). With the country moving towards urbanization, the real estate developers have shifted their focus to the affordable housing segment. The growth of the same and the demand for more residential spaces are expected to continue. The IBEF data further shows that this growth will also extend to the luxury and mid-range segments as demands continue to increase.
Demand for Commercial, Co-working Spaces
The Indian commercial and startup ecosystem is ever-growing and so are its demands, according to IBEF, Commercial office stock in India may have crossed 600 million square feet by 2018-end while office space leasing in the top eight cities was expected to cross the 100 million square feet mark during 2018-20. Owing to the exponential growth, co-working spaces across the top seven cities have increased sharply in 2018, reaching 3.44 million square feet, compared to 1.11 million square feet during the same period in 201
Focus on Efficiency
Of the various reforms introduced, the RERA was a major game changer which brought in accountability and transparency within the sector. The RERA requires the developer to disclose every relevant information to the allottees, it insists that no launch or advertisement can be developed before registering. Previously, the buyers were given a tentative date of completion which left them skeptical, but post-RERA, developers are required to fix a date and stick with the same.
Business models and ethics have been impacted by RERA. Apart from this, the introduction of the GST and the Benami Transactions (Prohibition) Amendment Act, 2016, has also played a part. The Act prohibits illegal benami transactions where the property is transferred to an individual for money paid by another. The sector is moving towards a more systematic, efficient and transparent functioning wherein all investments made are secure and accounted for.
Introduction of REITs
India was first introduced to REIT i.e Real Estate Investment Trusts through the Embassy Office Parks, which through its initial public offering (IPO) opened for investment in March. REITs can be compared to mutual funds in how they work. REITs helps investors to invest in the Indian real estate market. The introduction of REITs is expected to boost the commercial market segment. According to IBEF, it would create an opportunity worth INR 1.25 trillion (USD$19.65 billion) in the Indian market over the years.
For the sector watchers, the real estate sector might have lost its charm, but as Anarock’s report points out, long-term investors who have realistic expectations similar to mature markets still see potential. About 58per cent of buyers bought spaces for its end-use while the rest 42per cent bought real estate as a form of investment. Which is 10 per cent higher than the previous survey, indicating a significant change in the attitude towards real estate investments.
The paradigm shift the sector has experienced within a relatively short period has set the stage for the exponential growth it is expected to see by 2030. Anarock’s data also shows that the sector, which has shifted focus towards the affordable housing segment and Tier 2 and 3 cities, is still preferred by 57per cent of the respondents as a viable investment.