Demonetization has been a huge blip in the already-slow residential sector. The clamp down on cash payment resulted in slowing down sales drastically, especially for developers and markets where they was heavy reliance on cash transactions.
Demonetization has been a huge blip in the already-slow residential sector. The clamp down on cash payment resulted in slowing down sales drastically, especially for developers and markets where they was heavy reliance on cash transactions. However, a slow pick-up in the market and an uptick in confidence levels are expected towards the end of the year, says Anshul Jain, Managing Director, Cushman & Wakefield in India. In an exclusive interview with Sanjeev Sinha, he talks about the impact of regulatory changes on real estate and shares his outlook for the sector. Excerpts:
1. Do you think this year’s budget has been good for the realty sector?
The Union Budget 2017-18 has been a positive one for the real estate sector on most grounds. Awarding infrastructure status to the affordable housing segment is one of the biggest decisions by the government, which will usher in private developers to the affordable housing segment. Easier access to institutional credit will help developers reduce their borrowing cost for projects. Many developers are also looking to benefit from the government’s decision of 100% deduction of profits from tax of an affordable undertaking of carpet area of 30 sq. metres in four metro cities and up to 60 sq. metres in other cities.
While these initiatives are definitely lauded by the sector, there are some apprehensions regarding the announcement to restrict the set-off of loss from second-home purchase to a limit of Rs 2 lakh. This limit could keep investors in the second-home market on the back foot. Further, there was nothing to revitalize the economy through job growth in the SEZs and specifically in the IT-BPM sector. Both need the next level of policy interventions to deliver on their potential for generating valuable forex revenues.
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2. Demonetization is said to have hit the realty sector hard. When do you think the real estate market will be back on track?
Demonetization has certainly been a huge blip in the already slow residential sector. A substantial chunk of the transactions that took place in the land and secondary housing markets, involved a high component of cash. The clamp down on cash payment resulted in slowing down sales drastically, especially for those developers and/or markets where they was heavy reliance on cash transactions. We now foresee a slow pick-up in the market and an uptick in confidence levels towards the end of the year, especially post the enforcement of RERA by all states. This will improve confidence of the consumers in the realty segment, coupled with rebates offered by developers and lower home loan rates extended by banks.
3. The government has given lots of sops to the sector. Do you think real estate needs more from the government for revival?
An incentive in the form of increasing the tax deduction for interest paid on housing loans will definitely improve sentiments in the rather subdued housing market. Incentives for first-time homebuyers will especially push sales in a sluggish market. A faster approval process for projects too is the need of the hour as developers spend considerable time and money on approvals. While some states are adopting single-window clearances, the government needs to ensure that the same is followed throughout. Incentives to sectors that can exponentially push job creations are the need of the hour.
4. How will RERA and GST impact the sector?
RERA, which has been heralded as one of the most important reforms for the Indian real estate sector, will bring in accountability of developers and ensure that consumer rights are protected. In a sector that is fragmented, RERA attempts to bring in transparency, which will in turn improve the perception of the sector among various stakeholders in the long run. The impact of GST, on the other hand, can only be ascertained if real estate and construction are allowed set-offs under the ambit of GST and the tax rates applied are reasonable. Exemptions for affordable housing will definitely help to make them truly affordable and increase the supply exponentially to meet the government’s target of ‘Housing for all by 2022.’
5. In your opinion, is it a good time to buy one’s home?
The year 2017 has begun well with banks lowering home loan rates post demonetization as they were flush with funds. Simultaneously, developers are offering freebies and rebates to home buyers with greater ferocity, which could help homebuyers land a good deal. They are also actively looking at lowering the ticket size of apartments by lowering launch prices and / or apartment sizes. In totality, the combination of lower home loan rates, as well as greater room for negotiations with developers, indicate that it is a good time to buy a home now.
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6. What is your outlook for the real estate sector?
While sentiments are low at present, various steps taken by the government—RERA, REITs, and the recent demonetization – will certainly bolster investors and consumers’ confidence. We are likely to see greater traction in the affordable housing space starting this year, with several developers already making inquiries in this space. On the commercial office side too, there is a short-term impediment due to lower GDP growth projection led by demonetization, and uncertainty in the global economy due to BREXIT and H1B reforms proposed by the Donald Trump government. However, we expect the situation to normalize by the end of the year. The retail sector, on the other hand, is seeing a good run, with developers and investors viewing this space favourably. We foresee things picking up this year as a high number of malls are slated to be completed this year, coupled with investors’ lookout for good quality malls for investments. In terms of total investments, the year 2016 received approximately Rs 399 billion of inflows into realty. In 2017, we expect PE inflows to surge ahead as India continues to be an attractive investment destination buoyed by liberalization of policies, impending listing of REITs and stabilizing economy. Overall, things will only get better from here for the real estate sector, and the sector will likely see a turnaround towards the end of the year.