Luxury market set to recover in full strength

The Indian real estate market, which was at its lowest level in the past four to five years, has witnessed a recovery in 2018 with more transparency and greater consolidation. While affordable and mid-income have gained traction, premium properties are also on buyers radar.

According to a study conducted by the Ahmedabad-based marketing consulting firm the year 2019 will continue to be a cautious year, where developers will look to consolidate and exhaust existing inventory before launching new projects while buyers and investors will continue to wait to see if there is further price correction or consolidation in the market

The study has also revealed increased traction for luxury segment from High Networth Individuals (HNIs). HNIs have already started investing in the realty sector at current prices, expecting returns of 20 percent to 30 percent within the next two years.The Indian real estate industry is going through a lot of transformation in recent years. Some transformation proved to be a negative impact while some transformation made a positive impact. The government changed their policies lately such as demonetisation, Real Estate (Regulation and Development) Act 2016 (RERA) and Real Estate Investment Trusts (REITs), Goods and Services Tax (GST) and Foreign Direct Investment (FDI) have made a huge impact on the real estate market. Apart from these, there are other reforms anticipated by the experts of the Indian economy, which may come into force in coming time.

Due to the positive aspects of the transformation in the Real Estate Sector, we could be able to see the following expected growths

  • FDI incomings in Real Estate: As it has become a lot easy due to the government policies to invest in Indian Real Estate, we are able to see a huge investment from foreigners. This is expected to rise more in the coming years. 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. Improvements in India’s overall credibility with a transformation of the regulatory framework has built up an attractive destination for both global and Indian investors. Thanks to the improvement in transparency, NRIs and foreign investors find the country’s real estate market more reliable than ever before. FDI flow and demand from actual buyers may increase at the beginning of the coming decade.

 

  • REITs : The Real Estate Investment Trusts (REITs) are investment vehicles that own, operate and manage a portfolio of income-generating properties for regular returns. These are usually commercial properties (offices, shopping centres, hotels etc.) that generate rental income. An REIT works very much like a mutual fund. SEBI (Securities and Investment Board of India) requires Indian REITs to be listed on exchanges and to make an initial public offer to raise money. The Indian real estate sector has been facing a liquidity crunch on the account of unsold inventory and low demand. REITs can help cash-strapped developers to monetise their existing property. Indian investors don’t have too many regular income options. SEBI requires REITs to distribute a minimum 90 percent of their income earned to investors on a half-yearly basis. Similarly, 90 percent of sale proceeds too are to be paid out to unit holders unless the amount is reinvested in another property. Thus, you get to receive regular income and also get to benefit from price appreciation, thereby boosting your returns. In real estate sector, both rent and capital appreciation from property depend on the location, infrastructure and industrial development around that area. REITs juggle these risks through a diversified portfolio of properties. REITs helps you to diversify your investment. Along with diversification it provides you with good returns, stable income, tax efficiency and they are democratic in nature.

 

  • RERA: For long, home buyers have complained that real estate transactions were lopsided and heavily in favour of the developers. RERA and the government’s model code, aim to create a more equitable and fair transaction between the seller and the buyer of properties, especially in the primary market. RERA stands for Real Estate (Regulations and Development) Act, 2016. RERA seeks to bring clarity and fair practices that would protect the interests of buyers and also impose penalties on errant builders. The absence of a proper regulator (like the Securities Exchange Board of India for the capital markets) in the real estate sector, was long felt. The Act establishes Real Estate Regulatory Authority in each state and union territory. According to the central act, every real estate project must be registered with its respective state’s RERA. Existing projects where the completion certificate (CC) or occupancy certificate (OC) has not been issued, are also required to comply with the registration requirements under the Act. RERA seeks to address issues like delays, price, quality of construction, title and other changes. RERA have helped to reduce the initial backlog of real estate, it has also increased the cost of the projects. It has increased governance and transparency within the real estate. Developers are encouraged to use common and best practices for construction. It has also seen that advent of RERA has increased in organized funding of the projects. The buyer is assured with transparency and protection regarding the project. The buyer is provided with quality assurance and timely delivery of the projects under the RERA act.

 

  • GST: GST (Goods and Services Tax) seeks to transform India with its “One Nation, One Market, One Tax” principle. In the past, the real estate industry was embroiled in disputes due to ambiguity in provisions as well as multiple taxation. GST is expected to simplify taxation compliance and have a positive impact on the industry as a whole. The real estate sector is expected to become more transparent, since the introduction and implementation of GST. GST will absorb many of the indirect taxes developers had to pay under the previous regime. Logistics will also improve under GST and the availability of input credits will reduce project costs. These reductions for the developers will positively impact buyers, as costs will decrease. While there is still some confusion about the GST charges for under construction flats, the GST council is working towards resolving these confusions and ensuring that input credits are being passed to the end customer through the anti-profiteering clause in GST law.

 

  • Never ending increase in housing demand: Indian government realised it late that it is the government’s responsibility to provide housing facility to their residing individuals. Now there are reforms taking place to achieve this mission. The government has levied Pradhan Mantri AwasYojana (PMAY) under which a person is liable for having a house at affordable rates. In this way the houses are to be built more to meet the demands as such the government’s policy. There is a constant rise in the residential sector as the population is ever increasing, there is more demand for luxury affordable housing. Moreover, there is a rise in nuclear families and more people moving to urban sectors adds up to the housing demands. The residential sector can become more about space than size going forward.

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