Every year brings a different kind of milieu to the real estate industry. The last couple of years have been those of reforms. In the wake of the Union Budget 2018, a few trends are not only emerging but are also shaping the real estate sector. As we head further into the fiscal year 2018-19, these trends are becoming more widespread, and are being accepted and implemented. Let us have a look at what they are:
1. Transparency in the details
There was a time when getting any kind of real estate work was a headache for the consumer, because of the sheer amount of labour involved in wringing the right hands for the documents to pass. Alternatively, escrow services would consume a significant share for services rendered, if a helping hand was requested. However, thanks to the RERA Act 2016, the process has become much more rarified and open to inspection, thanks to the stress by the Centre on fair play, just practices, and adoption of a professional outlook towards the system. The concentration of foreign investment behind projects, and also in the buyer’s market has also boosted the need for information channels being open to accurate information changing hands.
2. Money plays
The Reserve Bank of India had uptil now been apprehensive about lending money to the real estate business, given the slew of shady practices and lack of profits. Assets that did not mature into the profit earning schemes that the realtors had predicted them to be. All these high risk provisioning discouraged banks from taking care of the real estate industry, and the real estate industry learned its lesson and started seeking funds elsewhere. This is when private equity funds and pension funds came under the spotlight and became a consistent source for real estate businesses. In fact, in the period between 2010-2016, the percentage of non-institutional fund sources went up from 25% to 75% of the total market.
3. Rise of a new business model
The lack of fruitful, profitable, complete project brought in the urgency of staying solvent, when a lot of individual real estate developers went bankrupt due to the lack of sales in real estate. The real estate market was compressed in size when multiple heavyweights joined forces and collaborated to pool in resources. Consolidation via mergers, acquisitions and joint ventures between real estate developers and that between developers and land owners defined the landscape of the real estate market in the last few years. Unless the reforms become a more streamlined part of the real estate business, this trend of owners and in-debt real estate firms selling their assets to bigger players is here to stay.
4. Foreign investment and private equity
As hinted above, foreign investment and private equity funds have become a cool source for cash for developers who cannot rely on the banks to bail them out anymore, owing to a pre-existent, fat ledger. A strong growth in the GDP in the past few years, governmental reforms and an incrementing positive turnover have attracted a slew of foreign investors, looking to gain entry into the finance-deprived, potential Indian real estate market. Thanks to the recent reforms introduced by RERA, the Indian real estate market is witnessing a lot of investment or joint venture bids from foreign investors and private equity owners.
5. Green buildings
The last time it was recorded, the green building footprint of the country was at a meagre 20,000 sq. feet. However, thanks to the increase in awareness, that dismal number has transformed into a whopping 4.5 billion square feet worth of green space, with 4500 IGBC registered green buildings in the kitty. The country now accounts for 10-12% of the global green building number. With 640 LEED-certified projects, and the 3rd rank in global green building marathon, the future looks promising.
(By Kapil Malhotra, Principal Partner & Head – North & East India, Square Yards, a real estate investment advisory firm)