INCLUSIVE DEVELOPMENT - SECTOR SET TO BOUNCE BACK
The real estate sector in India went through a major transfor mation in 2016. Several development policies brought in by the Modi government--making FDI easy, the real estate regulation act, and, now, demonetization of high denomination currency--has largely impacted the sector. In the main, positively.
The above policies, coupled with the huge demand for affordable housings in the country, have provided a huge opportunity for investors and developers to get into the act. In fact, this has set the scene for India's inclusive development agenda.
With a yawning gap between demand and supply in the sector projected in all the categories between 2016 and 2020, prices are set to go up, making real estate an attractive avenue for investment once again, a consultant said.
Cushman and Wakefield, a global real estate consultancy firm, said in a report--Revitalising Indian Real Estate: A new era of growth & investment--that the total demand in urban housing is estimated at 4.2 million units during 2016-2020, across the Top 8 cities in the country.
Correspondingly, housing projects under construction and those planned, by private developers, tot up to only 1 million units across the Top 8 cities, during 2016-20. The Delhi NCR (NCT, Ghaziabad, Faridabad, Gurgaon, and Noida) continues to register the highest proportion of demand--1 million housing units--making up 24% of the total demands in the Top 8 cities.
The central government's decision to ease rules for FDI, giving spot environment clearances, and mandating the implementation of RERA and GST by 2017, across the country, will spur massive construction activity in the India. These reforms will not only improve fund flow into the sector, they would also aid in timely completion of projects, restoring the confidence of homebuyers and investors.
The decision to demonetize high-denomination currencies last month, expected to deal a blow on the black money economy, will propel developers to recalibrate their plans to suit the highdemand segment of affordable housing in the sector, said Anshul Jain, managing director of Cushman & Wakefield, India.
“To be able to utilize the opportunity of the shortfall in supply to demand, private developers will have to change their approach and bring in better strategies, systems, technology, and funding options. Some international development companies are actively scouting various local markets to identify the right opportunities for themselves; Indian developers will need to gear up to meet their onslaught and remain relevant and profitable.“ After GST kicks in next year, developers, especially smaller firms, are expected to shift their focus to low-income housing to make gains, a report by Royal Institution of Chartered Surveyors (RICS, India) said. The report said GST was not fundamentally designed with the real estate sector in mind, though this sector stands to make reasonably grains through this.
The GST will take care of cascading effect of tax on tax. This will not only bring down the cost, but also make the system efficient.
The projected urban housing demand is the highest in the Delhi NCR, at 1 million units, across all the three segments--LIG, MIG, and HIG--amongst the Top 8 cities in 2016-2020. In the LIG and MIG segments, the city accounts for 24% of the total demand across the Top 8 cities. In the HIG segment, demand here accounts for 26% of the total demand across cities.
Mumbai and Bengaluru follow Delhi and are expected to generate housing demand of around 7,11,000 and 6,86,000 units, respectively, over the next five years.
While a majority of the demand comes from MIG segment within Mumbai, the LIG segment accounts for the maximum proportion of demand in Bengaluru.
In most of these cities, barring Mumbai, developers are currently focusing on the MIG segment, with 60-70% of the forthcoming supply concentrated in this segment.