Indian Real Estate Lookout For 2018-2019

Indian Real Estate Lookout For 2018-2019

Indian real estate is going through a major transformation in the recent years. Some of the big decisions and new policies of the Indian Government have affected the real estate sector in big way, albeit in positive or negative manner. Few of the policy changes introduced by the government, such as demonetization, RERA, and REITs in 2016, followed by GST and FDI in 2017, have made huge impacts on Indian real estate sector. Apart from this, there are various other reforms anticipated by the experts in Indian economy, which may come into force in the coming time. However, the new legislation and trends that have come up in the real estate market have the power to reshape the Indian real estate sector for a long term and year 2018 can be a starting point towards the Indian real estate growth story.

Looking at the positive aspects of the reforms, there is a big possibility that years 2018-19 are going to be the bumper years for the Indian realty market. The transformation of market has attracted the eyes of domestic and foreign investors, and there are various positive trends observed by the experts, which point towards a more pro-active, positive and growing Indian Real Estate sector. Listed below are seven major positive trends in the Indian Real Estate market, which shows that there is great depth in the market and the so-called revival of real estate in India has already started.

  1. Global capital flow into Indian real estate

One of the major signs of revival for Indian property market, investments by global investors has increased recently, with various international property funds and investors acquiring strong position in Indian realty space. As per World Investment Report 2016-17 by the United Nations Conference for trade and development, India has been ranked fourth in terms of FDI inflows, which shows strong interest by the foreign buyers and investors in the Indian markets. Improvement in India’s overall credibility with transformation of regulatory framework has built up an attractive destination for both global and Indian investors. Thanks to improvement in transparency, NRIs and foreign investors find country’s real estate market more reliable than ever before. Thus far, Indian real estate has attracted USD 32 billion in private equity and various other foreign investors are willing to invest in various sectors in India. As per Economic Survey of India, Indian Real Estate sector witnessed significant improvement attracting a total Foreign Direct Investment of USD 257 million in the second half of 2017 only. Looking at this trend, the expectations from private equity is high in the coming years and it is projected that 2018 and 2019 will be even bigger years for FDI investments in India.

  1. Developers will revamp their business models

From year 2000 to 2016, because of lack of strong regulations of Indian property sector, developers used to launch many projects at the same time and there was no guarantee of completion of projects on time. There are numerous instances where investor’s hard earned money went down the drain, simply because the developer is highly over-leveraged and could not complete the project. Now, with the enactment of RERA Act (Real Estate Regulation and Development Act, 2016), a deadline has been fixed for the projects to be completed, which will force developers to re-zig their business models. The developers will require to bring more transparency as well as accountability in their processes, and do a lot more to increase consumer confidence in the project. Also, other legislative reforms such as The Goods and Service Tax (GST) Act 2017 as well as The Benami Transactions (Prohibition) Amendment Act 2016, will have a major impact on the business models and work ethics of developers. This also means that most of fly-by-night developers will be out of market and Indian real estate will have more reputed and serious property developers. This will bring in more confidence of domestic and foreign investors into the market, which may result in higher and sustainable demand in the long run.

  1. Ever increasing housing demand

Although past few years have observed comparatively lower transactions in the residential sector, housing demand in the country is quite high, thanks to its ever-growing population size. In India, there is an estimated shortage of around 40 million houses (urban and rural). In addition, population growth of 1.3 per cent per annum, favorable demographics, rise of concept of ‘nuclear families’, increased migration to urban areas, fiscal benefits, rising income/aspirations, etc. could lead to another 10 million demand for houses per annum. However, in the recent times, most of the property developers focused on luxury to mid end housing only, whereas much of this demand is in the affordable housing segment. Moreover, with time, the definition of affordability also has changed and with ever increasing land prices, high finance rates, construction cost and stringent development regulations, affordable housing was not at all profitable option for real estate developers. This required some impetus from the government for developers to focus on affordable housing segment.

With the government nod of infrastructure status to affordable housing in Union Budget 2017-18, this sector is expected to grow at a high pace. The affordable housing segment is expected to be the next big growth driver of the Indian economy with property experts predicting a phenomenal growth rate of over 30% in the medium term. Developers may now have options for diverse and cheaper sources of funding, including external commercial borrowings (ECBs), which eventually can lower the borrowing costs of developers, who should pass on the savings to the buyers and investors. New reforms also amended the size of affordable housing units in big cities, which is more in line with the markets. Moreover, banks may also be willing to lend these projects at attractive interest rates, which will result in easy and cheaper financing options to end users as well. With this in mind, various property developers and builders in India are gearing up to develop affordable housing projects, which is expected to improve the market sentiments in the time to come.

  1. Commercial market shots

One of the major leader of property sector, commercial office market, is turning out to be the front runner in witnessing positive changes in the market owing to various legislative revolutions. RERA, REIT, demonetization, GST, Make in India and various other reforms have given numerous positive shots to commercial real estate market, which has started springing back towards high growth curve.

A) REITs: With the government making way for REITs (Real Estate Investment Trusts) in Indian realty market, the commercial office market has already started bouncing back in Mumbai, Bangalore, Delhi and Pune. With major market players such as Blackstone, Embassy and DLF making fast in-roads for REIT model in India, the trickle down impact on other realty players in anticipated in 2018-2019, which may result in improvement in other commercial office markets of the country with higher investment returns to its investors. The REIT potential in India is huge, with around 229 million sq. ft. of office space currently being REIT compliant. As per industry experts, even if 50% of this space is listed in the next few years, it will be mammoth $18.5 billion worth of REIT listing. Moreover, India’s stock of Grade A commercial assets is also increasing with more and more developers are looking to contribute to this sector and REITs acting as a sure-fire growth catalyst. The long term results should show investments in other markets such as retail, industrial and hospitality, which is expected to improve the overall market sentiments.

B) Co-working spaces: Indian office sector is moving into ‘hybrid’ spaces or co-working culture, looking at the strong demand for flexible working spaces in India. The rise of numerous start-ups in Indian markets has paved the way for this market, which is turning out to be a big boost for the commercial office sector. Co-working spaces are popping up across Indian metros as well as Tier-II cities, providing start-ups with flexible working options at affordable rents. Presently, there are more than 100 operators in this space across India, though there is still very limited supply of co-working spaces available. This sector is slowly moving to become a big success story, with various other countries also following the same model.

C) Industrialization and Trade: Apart from various other factors, improvement in industrialization and trade opportunities in the recent past are also fueling the demand for commercial office space in various cities in India. Moreover, with recent changes in FDI policy, demand for warehousing industry is expected to increase many-folds in 2018-2019, which will have a positive impact on other sectors including commercial office market.

  1. Alternative asset classes

It is quite heartening to know that it is not only the residential, commercial and hospitality sector, which are showing revival of trends. Instead, various alternative and new asset classes have emerged in the Indian real estate sector such as short term stays, specialty hospitals and medical institutes, schools, student housing, aged care facilities, etc. These emerging sectors are showing great signs of high growth in the recent times and promises to push the sector further up with induced investments by various domestic and foreign investors.

  1. Market consolidation 

In the past few years, owing to slowdown of realty sector, comparatively few sales and lack of financing options in India has led to various developers over-leveraging themselves. This means that most of small time developers may either have to sell off their assets or enter into JV with big and more reputed developers to save them from this financial mess and deliver their projects. With this consolidation of property development market on the cards, the highly overcrowded real estate sector in India is expected to become a lot leaner and meaner. With consolidation happening by ways of joint developments and joint ventures between landowners and/or small developers with bigger, better-organised players, smaller developers being bought out by larger players, and struggling developers cashing in their land banks by selling them to players with stronger balance sheets and appetite for growth.

This may be a lengthy process for the time being, however, the initial feelers of this process are prominently visible in various markets in India. Several small builders with half-baked projects are already looking for investments and rescue from big brothers, with many more sitting on the fence to gauge the initial results. This consolidation will surely flush out all the bad elements from the real estate market and it is expected to be more transparent, level playing and promising market for foreign and domestic investors.

6 Important Points To Remember Before Investing In Real Estate

6 Important Points To Remember Before Investing In Real Estate

6 Important Points To Remember Before Investing In Real EstatePoints To Remember before buying a property

 

Investing in real estate is an enormous task. A prospective buyer, first time or otherwise must consider a number of factors before committing to a piece of property. However, there are some basic mistakes that a prospective buyer can avoid. This list will attempt to provide some clarity in the messy business of investing in real estate.

1. Research: This is the golden rule. The importance of research cannot be stressed upon enough. A fair amount of research can make all the difference between a good investment and a bad one. Attention should be placed to details such as

  • Location
  • Type of locality
  • Connectivity to hospitals, schools, airport, etc.
  • Reputation of the builder and developer
  • Property rates as well as the rates of neighbouring properties
  • Is the house located in a problematic area like a flood-zone?
  • Is the home insured? Will the property require additional maintenance expenditure?
  • Judging the market value of the house and find out if you are paying above the market value.
  • Ask yourself questions. Assess if the house will be mainly for living purposes. If not, then can the house be rented out? Or, can it be put on the market again? If so, what will be the value of the house then? All in all, be clear about the purposes you have in mind for the house and proceed accordingly.

2. Discuss: Discuss your plans with others. Consult with family, friends, other buyers as well as sellers. Inform yourself of policies such as the RERA that protect consumer rights. If necessary, seek professional advice from consultants who know their ways around the real estate business. Discuss loan strategies and more importantly, set investment boundaries.

3. Set Investment Boundaries: It is also very important to figure out what one requires from the property they are looking at. An easy and foolproof way to tackle this would be to make a list of requirements. A list of requirements also assists in the setting of investment boundaries. If one does not set an investment boundary, chances are that they will end up paying a lot over the stipulated budget and incur heavy losses. The buyer should also evaluate other properties instead of setting their sight on one. It is often the case that sellers confuse buyers to get them to buy their property. In these cases, to avoid this confusion it is best to consider other prospective properties too.

4. Tax Benefits: Remember your tax benefits. This is a very important step as overlooking this step will guarantee heavy loss and no monetary returns. Keep track of tax benefits on existing property and any new property you might be investing in. It usually helps to have a consultation team as they will keep you informed at all times.

5. Bad Financial Decisions: This is one of the trickier areas in real estate investment. Bad financing has severe and unalterable consequences. Experts say that bad financing is one of the ways in which investors lose most of the money. First off, the buyer needs to be aware of their credit score at the bank. If they haven’t paid off earlier loans it is likely that the bank will not offer any financial assistance to make the purchase. It is advised that the buyer clears any loans they have in the bank before setting out to invest. However, this can’t provide any guarantee, because in 2008, during the credit crisis, refinancing became very difficult. Bad financial decisions can be a combination of factors such as

  • High-interest rates
  • High monthly payment
  • High rates of borrowing
  • Balloon payment

All of the above are connected to each other. Mortgages only allow borrowing of 80% of property cost. It is advisable to not borrow more than the stipulated 80% as that could endanger future assets one is borrowing against. High-interest rates combined with high monthly payment can very easily lead to a balloon payment in a short period. This is again, not advisable as selling and refinancing to combat the balloon payment is a difficult and time-consuming process.

6. Debt: This is another important aspect of real estate development. Research on how debt works and chart out the best plan for payment. Experts advise buyers to choose for debt with lower interest rates and a larger down payment. This ensures that the debt incurred is paid off at a steady pace.

Of course, it must be remembered that there is no foolproof way to success in real estate investment. However, with diligence and attention to detail, certain problems can be anticipated. This list attempts to inform prospective buyers of basic problem areas.

Disclaimer: Article has been posted by Oswal Group

 

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