Though the
full implementation of Real Estate Regulation & Development Act 2016, may
still be months away, yet RERA that protects and empowers homebuyers,
making the entire home buying process fair and transparent, aided by other key
reforms, has already turned homebuyers’ sentiment and market perception
positive. Here are 10 factors that will give the much needed boost to
residential real estate.
1 More disposable income
Over
the past two years, one major reason for homebuyers taking a back seat, has
been the worsening job market, drop in disposable income and uncertainty over
paying capacity in view of high EMIs. But there are promising times
ahead, especially with the hiring activity growing by 10 per cent last year and
there were salary hikes of 10-12 per cent. According to MyHiringClub.com, this
year’s outlook promises pay hikes in the range of 10-30 percent. The Seventh
Pay Commission announced by the Centre is set to trigger a substantial hike in
salaries, thereby pushing up disposable income. The salary hike of government
employees will have a positive rub off on the pay packet of private sector
employees. Although, the IT limit has not been hiked in this year’s budget, yet
hike in HRA limit of standard deduction of Rs 24,000 p.a for not availing HRA,
will also push up disposable income.
2 Softening of interest
rates
High
interest rates have also been proving to be a dampner for housing for quite
some time. But from this year onwards, things are likely to change for better,
with interest rates set to drop to single digit level. Lending rate cuts hold
the key to the recovery of residential real estate. After the Finance Ministry
cut the FY '17 fiscal deficit target by 40 bps to 3.5 per cent of GDP and with
economy in deflationary mode, RBI may well announce 25- 50 bps rate cut in its
April policy review. All this is expected to provide relief to prospective
homebuyers by way of lower EMIs. Some developers have already come up with
schemes like no EMi till possession, low EMIs for first few years and
zero per cent interest on loan to lessen the EMI burden of home loan
seekers.
3 Three cheers for consumer
protection
Lack
of consumer protection and large-scale delivery defaults due to slowdown had
badly hit the buyer sentiment. But the passage of Real Estate Regulation
& Development Bill 2016, aimed at empowering and protecting the real estate
consumers through measures like escrow account for real estate projects and
early resolution of disputes, while at the same time reining in the errant
developers with stiff penalties, will restore the confidence of home buyers,
thereby triggering home sales.
4 More liquidity for
developers
The
ongoing real estate slowdown, especially in the residential sector, got
precipitated in the past with the severe liquidity crisis faced by the
developers. However, with speedy reforms undertaken by the government,
floundering funding environment is looking up. Due to relaxation in FDI norms
over the past two years, the entire real estate stock is now accessible to
foreign investors.This is already having a positive impact on the liquidity
front, with substantial increase in FDI in real estate. Even the PE
investment touched Rs 14,974 crore last year, clocking a record growth of 33
per cent.
Industry
players expect PE players notching up a bumper 2016, with more and larger
deals. On the domestic front too, things are looking up with Kotak Realty Fund
raising $ 250 million, Indiabulls Real Estate Fund raising Rs 500 crore and JLL
India arm set to raise Rs 120 crore by April. The liquidity environment will
further look up with RERA set to open the doors for cheaper bank funding. The
abolition of Dividend Distribution Tax on REITs in 2016 budget will provide
access to new source of funding.
5 Focus on execution to increase
The
failure of real estate developers to execute projects on time, jeopardising the
investment of homebuyers, was a prime reason for the slump in real estate
market. But going forward, the increased capital inflow through PE and NBFCs
will strengthen the execution capability of developers. Piramal has offered Rs
15,000 crore of open credit line to sekect builders. Moreover, large firms are
entering the scene as development managers for stressed developers in return
for a share of revenue and profits. RERA will further improve execution as it
envisages strict deadlines for completion of projects and higher penalty for
defaulters. Moreover, with RERA set to be implemented in states in the next few
months, builders will rush to complete pending projects to avoid stringent
provisions of the RERA Bill.
6 Deals, discounts and freebies
Because
of the weak home sales due to recession, developers desperate to push up sales,
have been offering attractive deals to prospective home buyers. These deals are
in the form of discounts and freebies like cars, air conditioners, modular
kitchens, besides waiving off registration, club and parking charges. They have
also been offering newly launched residential properties at reduced
price. But all this could not boost the confidence of investors and home buyers
to invest. But in the present scenario, when these deals come with the
financial protection through RERA, the trust deficit of buyers, will get
bridged and they will get encouraged to invest in residential real estate.
7 Increasing affordability
The
ongoing reforms coupled with budgetary policy initiatives like 100 per cent
service tax exemption for affordable homes, additional yearly rebate of Rs
50,000 on housing loan interest for first-time homebuyers in the affordable
segment have significantly contributed towards strengthening the affordability
of home buyers. And going forward, the increased disposable income through
salary hikes, together with lower interest rates, will strengthen the
affordability for homebuyers.
8 Policy push to housing sector
In
line with its aim of providing ‘Housing for All by 2022’, this reform- oriented
government through its policy prescription, is giving a forward thrust to the
housing sector. Already housing for weaker sections and slum redevelopment has
been brought under CSR to give impetus to the supply of affordable housing.
Promotion of affordable housing for EWS through credit-linked subsidy and
promotion of housing for urban poor is also being given a push. The government
has cleared a Rs 82,000 crore plan for rural housing under which three
crore homes are to be built by 2022. In order to boost rental demand for
affordable housing, the budget has hiked the limit of deduction for rent paid
under section 80GG of IT Act.
9 Fear of price rise
Residential
property prices have stayed muted over the past 6-7 quarters because of weak
sales and large unsold inventory. According to Credai prices have come down by
15-20 per cent during this slowdown period and there is no scope for further
reduction in prices. But now this depressing scenario is set to change
with RERA providing consumer protection and boosting homebuyers’ sentiment, in
turn providing much needed momentum to home sales. And as sales pick up and
inventories go down, prices are bound to firm up. According to a latest Knight
Frank report, ‘Residential Investment Advisory Report 2016’, about a dozen
investment locations across six top cities of Mumbai Metropolitan Region, NCR,
Bengaluru, Chennai, Hyderabad and Pune, will witness price appreciation over
the next 5 years. RBI says that price increase is already happening in 10 major
cities.
10 An attractive asset class
Due
to prolonged slowdown in the sector resulting in depressed prices, the interest
of end users and investors had dwindled during the past over two years. It got
partly shifted to financial assets. But now a number of recent
developments have once again put real estate back on the radar of end-users and
investors. The volatile stock market and lowering of interest rates has taken
the sheen off the attractiveness of stocks, mutual funds or FDs. The revival of
real estate market with commercial realty and now followed by residential
realty ( particularly after RERA), has increased the attractiveness of the
asset class, especially as the prices are on an upward swing. According to
Stuart Roberts, CEO, Asia Pacific, Cushman & Wakefield, with a number of
reform measures Indian real estate is on the radar of international investors.
Credit : Vinod Behl
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