The Real Estate Regulation & Development Act (RERA) is expected to become effective in 2017. The real estate industry is also looking forward to the Goods and Services Tax (GST) and the Benami Property Act as these will have a major impact on how developers run their businesses. These measures are also expected to make the Indian real estate industry more transparent and more accountable and drag the industry into a modern age. In this article, we take a look at 6 trends that will shape Indian real estate in 2017.
Increased FDI into Indian real estate
As per the World Investment Report 2016 by the United Nations Conference for Trade and Development, India is ranked fourth in Asia for FDI inflows. In 2016, global capital flow into Indian real estate was US$ 5.7 billion. Despite the uncertainty around Brexit and the new US President’s outsourcing and visa policies, private equity looks healthy so far in 2017. According to Ramesh Nair, CEO & Country Head, JLL India, changes in the regulatory framework and launch of REITs is positioning India as a more liberalized market with increased transparency which is making the country attractive as a destination for foreign investments.
Developer business models will see revamp
2016 saw lower number of new residential project launches compared to previous years. Observers say that property market was dominated by home buyers last year as speculative investors kept away from real estate investment. This could be because of approaching deadline for states to implement RERA, the incoming Goods & Services Tax and the Benami Property Act. Combined with demonetization, these have majorly impacted the business models used by developers. However, residential demand is expected to pick up towards the end of 2017. Corporate developers like Tata, Godrej, L&T, Bharti, and Mahindra are expected to acquire more projects, and Birla is gearing up for their first real estate development.
Growth of co-working spaces
Co-working spaces cropping up across Indian metros and tier-II cities are providing start-ups with flexible working options at affordable rents. Co-working spaces offer cost-efficiency, employee motivation and retention and better productivity, however, as of now, there is limited availability of co-working spaces. There are more than 100 operators in this space across India. Firms house innovation teams in co-working spaces to integrate them quickly into the entrepreneurial ecosystem. Firms also look to base their client servicing teams close to respective clients in locations with low office vacancy.
Spotlight on affordable housing
In the Union Budget 2017-18, the government has accorded infrastructure status to affordable housing projects in the country. The government aims to build one crore houses in rural India by 2019 and this segment will receive various sources of financing including external commercial borrowings (ECBs).
- Refinancing of home loans by National Housing Banks (NHBs) is also expected to boost the sector.
- A new Credit Linked Subsidy Scheme (CLSS) for mid-income people with provision of INR 1,000 crore in 2017-18 was announced.
- Extension of tenure of loans under the CLSS of Pradhan Mantri Awas Yojana (PMAY) was increased from 15-20 years.
- The Budget raised PMAY allocation from Rs 15,000 crore to Rs 23,000 crore in rural areas.
Qualifying criteria for affordable housing has been revised to 30sq.m and 60sq.m carpet area in the four metros and non-metros respectively. Also, demonetization is expected to cause land prices to ease in the coming years – especially in tier II and tier III cities.
REITs to bring in more capital
The first REIT listing is expected within the next few months. With the RBI moving to greenlight REITs, this will attract both institutional and smaller investors as REITs can offer regular dividends at relatively low risk. Indian REITs will prefer to invest in commercial space developments. Experts say that the REIT potential in India is huge with around 229 million sq.ft. of office space currently being REIT-compliant. Even if 50% of this space is listed in the next few years, we could be looking at a total REIT listing worth US$ 18.5 billion. Moreover, India’s stock of Grade A commercial assets is increasing, with REITs acting as a sure-fire growth catalyst.
More industry consolidation
Slowing sales and lack of financial prudence among many developers is leading to a period of consolidation, at least for the next 5 years, which will result in a leaner real estate industry. Joint ventures between landowners and small developers, bigger and better-organized players, struggling developers selling land banks to stronger players are some of the actions we will see in the coming months. Alongside, we have some foreign developers who have already set up base in the country and are playing for keeps.
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