Five ways prospective homebuyers will benefit in New Year

By: | Updated: January 2, 2017 7:42 PM

No need to say that 2017 promises to be an extremely favorable year, particularly for home buyers, on the back of strong reforms implemented in 2016. Here we are taking a look at how homebuyers are likely to gain in the new year.

While the first three months of this year may test the waters for the real estate sector, as the year progresses the tide will turn in favour of developers as well. (Reuters)While the first three months of this year may test the waters for the real estate sector, as the year progresses the tide will turn in favour of developers as well. (Reuters)

Despite facing lots of hiccups, 2016 proved to be a landmark year for the nation’s real estate sector which saw the kind of changes and policy reforms not seen over the last many years. Some of the biggest game-changing policies like GST and RERA are on their way to full implementation. Although the government’s demonetization drive caused considerable turmoil, but along with the Benami Transactions Act, it promises to bring greater transparency to the sector and is all set to boost its credibility in the long run.

According to PropTiger, 2016 was the year when most fundamental policy decisions were taken to professionalize the industry. Bills such as Real Estate Regulatory Authority Bill, Benami Transactions Act, GST Bill and policy decisions such as demonetization of high currency notes will all work towards cleaning up the sector from the black money mess which it finds itself in. Though in terms of metrics such as new launches and sales, 2016 has been bad for the sector, especially given big hit of demonetization in the last quarter of the year, but the foundation for future growth has been set up.

No need to say that 2017 promises to be an extremely favorable year, particularly for home buyers, on the back of strong reforms implemented in 2016. Here we are taking a look at how homebuyers are likely to gain in the new year:

Borrowing rates to taper off: To begin with, borrowing rates are expected to taper off in 2017 given the huge influx of money in banks post demonetization. In fact, as a New Year gift to consumers, some state-owned banks like SBI and UBI have already announced steep interest rate cuts in several years on January 1, which is likely to be followed by private banks soon. “This can set off a cycle, wherein lower rates of interest will direct borrowers to avail more loans at attractive interest rates. In the future, owing to low returns, it will not be feasible to park one’s savings in bonds or fixed deposits. So consumers will prefer to buy property in the future,” says Surendra Hiranandani, CMD, House of Hiranandani.

According to him, a simple back of the hand calculation shows that a 1% reduction in home loan rates will lead to almost 7.5% savings in EMI, thereby putting more money in the hands of consumers. The official economy will see a positive growth in the following months, elevating the purchasing power of the consumer, encouraging the consumers to invest more.

Kaushal Nagpal, co-founder, BookingKAR, says, “2016 was a subdued year for Indian realty and even 2017 looks no different. Indian real estate market is going through a rough patch and the only respite can come from a sharp decline in interest rates. RERA would gradually build confidence among buyers. But we strongly feel that post interest rate cut, there would be a substantial demand for residential group housing. That would actually be a good time for end users to choose from several ready-to-move-in projects, as they will save on the money spent towards service tax.”

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Possibility of price cuts: Apart from lower interest rates, there is also the possibility of further price cuts, particularly in case of luxury housing and in the resale market. As per a few reports, the prices of luxury houses have already come down by more than 30% in a few circles in Mumbai and Delhi. This will remain so for some time, depending on how fast the economy recovers from the demonetization impact. If the much-promised crackdown on real estate happens this year, we can see further drop in prices. This will surely benefit homebuyers.

Possibility of excellent deals: Homebuyers may get excellent deals in the market as the industry has just begun to adjust to the new rules. This holds true especially for the first quarter of the year as most developers will look to sell existing inventory. New launches will get impacted early on. So the demand for available inventory and ready-to-move-in homes will increase. The rise in demand will ensure that prices – particularly in the primary segment — remain firm and start the ascent once again. So, it will only benefit those buyers who act swiftly and purchase the property in the interim period.

Increase in transparency & consumer confidence: The year 2016 witnessed some positive and potentially long-lasting changes being introduced in the Indian real estate. “The passing of RERA (Real Estate Regulation and Development Act 2016), the Benami Transactions Act and then the demonetization move will ensure that going forward, the sector will lose much of its historic taint and become more transparent. These moves will ensure increased transparency, improved investor confidence, better access to funding and higher FDI,” says Atul Banshal, President-Accounts & Finance, M3M India Pvt Ltd.

Thus, once real estate deals become more transparent and consumers start gaining confidence because of various policy initiatives, it will benefit homebuyers as well as they will become more confident of investing in property.

Further boost for affordable housing: Affordable housing will come into sharper focus now than in previous years. According to a JLL India report, the Modi government’s focus on affordable housing has helped in making the term more acceptable to developers. From the previous fear of being tagged as developers who build affordable homes, the community is now not only entering this segment with confidence but also talking about it openly. There is now considerable goodwill attached to such a move, and affordable housing obviously makes eminent business sense.

There has been an overwhelming historic deficit of affordable housing projects. Moreover, in the face of slowing sales in the luxury and premium categories, affordable housing can open up a new revenue source for those entering this segment. And, more importantly, the Modi government’s decision to provide interest subvention of 3% and 4% for loans of up to Rs 12 lakh and Rs 9 lakh, respectively, under Prime Minister Awas Yojana (PMAY) is expected to further boost low-cost housing. Thus, as the sector’s focus on affordable housing increases, it will benefit homebuyers also.

REALTY SECTOR AND BUILDERS TO GAIN TOO

While the first three months of this year may test the waters for the real estate sector, as the year progresses the tide will turn in favour of developers as well. There will be a spurt in demand as buyers will return to the market owing to attractive rates and good deals. The year will also see the demand shift from secondary market to primary construction owing to erosion of cash-linked sales. “This will lead to better inventory utilization and ensure launch of new projects in the second half of the year. We can also expect significant foreign investments in the sector and increased participation from financial institutions, owing to better transparency and credibility post the policy changes initiated last year,” says Hiranandani.

Ashwani Prakash, executive director, Paramount Group, is of similar views. He says, “Unlike previous several years where the realty sector used to get completely ignored, 2016 got pretty much the best out of everything. From infrastructure to key policy decisions to so much more. Although clarity over acquisition of land and a long-pending desire of entitling this sector with the industry status is still pending, 2017 looks like the year where these demands of the sector might be met and few income tax exemptions or incentives for the people might get introduced in the upcoming Budget session. This, coupled with reduced interest rates, will allow the realty sector to function fluently and perform even better than 2016.”

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