Last few years have been a tectonic shift in India\u2019s real estate sector. The game-changing regulations, new taxation regime, and now NBFC crisis are making everyone wait and re-calibrate the investment strategies. Real estate was a booming sector from 2011 to 2016. During this period, stock markets gave an annual return of 6.2% while gold gave an annual return of 3.6%. This attracted a lot of investors or so-called hot money in the residential real estate because apparently prices were supposed to only go up. Nobody wanted to miss the one-way bus. Developers would sell a lot of inventory at pre-launch stages itself at discounts and use customer advances received to secure approvals for the project or even pay balance land costs. With tax regulatory regimes, everyone with untested capabilities wanted to become a developer. Those were the abnormal and exceptional times. With low entry barriers, new developers entered the market, investors made out of the ordinary returns while farmers reaped a golden harvest by selling their agricultural lands. However, with the new macro environment now gradually setting in, we are increasingly seeing purging out of some of these developers being taken to the insolvency courts. Many buyers have burnt their fingers and activism is finally finding its voice through different platforms. After the introduction of RERA and demonetization, which caused a temporary slowdown, the recent NBFC crisis has led to a further liquidity squeeze for developers. The cost of funds is going up in the near future. Without a doubt, the residential real estate is going through its worst phase. Some of the changes in the investment patterns that one can expect going forward in this rapidly-evolving real estate industry landscape include: Investors would prefer commercial real estate over residential: Investors are now going to stay away from the residential segment, which will mean less liquidity and limited price appreciation. They would rather look for commercial properties where at least rental yields will support their return on investments. Yields on residential properties have historically languished between 2% and 3% whereas they can earn up to 9% to 10% on commercial properties. The commercial real estate will attract more investors until yields fall down substantially from the current levels. End users should invest in residential properties: Since residential real estate prices will remain under check, only end users who plan to stay for longer tenures at a location should consider buying a house. The end users with a longer time horizon (e.g. businessmen, people with stable jobs, nearing retirement or already retired) value a stable living ecosystem more compared to the financial implications of owning and maintaining a house. Renting is a better option for end users without long time horizon: Working age professionals who are on the move with their job profiles consider renting as an option seriously. In a country where financial, convenience, and social cost of transportation is increasing by the day, it makes more sense to stay close to their workplaces. Renting is relatively more convenient in such cases and it reduces the burden of leverage as well. Developers need to customize the product: Since residential real estate will be driven by end user preferences, developers should pay more attention to their requirements in terms of location, social infrastructure, unit sizes, prices, quality of construction and deliveries more than ever to survive. Affordable and mid-income housing would see more demand in the short-to-medium future. Developers who do not calibrate their business model to the evolving macro-environment will gradually see an exit from the market through market-driven forces. (By Sandeep Batra, Associate Director, Capital Markets and Investment Services at Colliers International India).