MAJOR TRENDS IN INDIAN REAL ESTATE
The real estate sector is one of the most globally recognised sectors. In India, real estate is the second largest employer after agriculture and is slated to grow at 30 per cent over the next decade. The growth of this sector is well complemented by the growth of the corporate environment and the demand for office space as well as urban and semi-urban accommodations. Real estate trends have the power to shape or reshape the Indian real estate sector in 2017. Considering the policy changes introduced during 2016 like demonetization, RERA, and REITs, it seems that 2017 is going to be a bumper year for the realty market. After implementation of RERA Act and the Benami Transactions (Prohibition) Amendment Act 2016, the nation has become the preferred destination for real estate investment. It is also expected that this sector will incur more non-resident Indian (NRI) investments in both the short term and the long term.
Apart from this, the experts have made various other anticipations for 2017.
Global Capital Flow into Indian Real Estate
The Indian real estate sector has witnessed high growth in recent times with the rise in demand for office as well as residential spaces. The real estate sector in India is expected to attract investments worth US$ 7 billion in 2017, which will rise further to US$ 10 billion by 2020. The World Investment Report 2016 by the United Nations Conference for Trade and Investment has ranked India fourth in developing Asia for FDI inflows.
Some of the major investments in this sector are as follows:
Godrej Properties Ltd has tied up with Taj Palaces Resorts Safaris for developing its mixed-use project called 'The Trees', spread across 9.2 acres, that will include a 150-room Taj Hotel, a luxury residential property called 'Godrej Origins' as well as a high-street retail court.
Motilal Oswal Real Estate, a real estate-focused investment subsidiary of Motilal Oswal Private Equity Advisors Pvt Ltd, is planning to invest Rs 800 crore (US$ 124 million) in FY 2017-18 in mid-income residential projects as well as commercial office projects.
A joint venture between Dutch asset manager APG Asset Management and real estate asset platform Virtuous Retail, has acquired a portfolio of three shopping malls for US$ 300 million, and has committed an additional US$ 150 million as equity capital to expand the portfolio.
Altico Capital, a non-banking finance company (NBFC), has teamed up with American private equity firm KKR & Co LP to invest Rs 435 crore (US$ 65.25 million) in a 66-acre residential township, being developed by SARE Homes in Gurgaon.
Revamping of Business Model by Realtors
The implementation of Real Estate Regulation & Development Act (RERA), will force developers and realtors to improve their business model. They need to bring more transparency and accountability in their system to win the trust of customers. Along with RERA, other changes like the Goods and Services Tax (GST) and the Benami Transactions (Prohibition) Amendment Act 2016will also affect how developers work. Those who didn’t bring changes in their business policies have now realized that they don’t have any other option than revamping their old business models to sustain in the new real estate market in India.
The sun rises on affordable housing
Affordable housing in India is finally set to get the much-coveted infrastructure status. One crore houses are to be built in rural India by 2019, and this vital segment will now see cheaper sources of finance. Extension of tenure of loans under the CLSS of Pradhan Mantri Awas Yojana (PMAY) was increased from 15 to 20 years, and the Budget also increased allocation to PMAY from Rs 15,000 crore to Rs 23,000 crore in the rural areas.
More industry consolidation on the cards
Slowing sales and lack of financial prudence among several developers is leading to a fairly obvious conclusion - consolidation. The overcrowded real estate sector is going 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, struggling developers cashing in their land banks by selling them to players with stronger balance sheets and appetite for growth. The pace at which this happens will depend on how much equity gets infused into the sector by the larger PE investors, and the strategy that foreign and domestic developers adopt. Some foreign developers have already entered the country, setting up base and obviously playing for keeps.
Road Ahead
The Securities and Exchange Board of India (SEBI) has given its approval for the Real Estate Investment Trust (REIT) platform which will help in allowing all kinds of investors to invest in the Indian real estate market. It would create an opportunity worth Rs 1.25 trillion (US$ ) in the Indian market over the years. Responding to an increasingly well-informed consumer base and, bearing in mind the aspect of globalisation, Indian real estate developers have shifted gears and accepted fresh challenges. The most marked change has been the shift from family owned businesses to that of professionally managed ones. Real estate developers, in meeting the growing need for managing multiple projects across cities, are also investing in centralised processes to source material and organise manpower and hiring qualified professionals in areas like project management, architecture and engineering.
Some investors and developers will take plunge into the market now, while others will prefer to ride the fence for a while; but one way or the other, consolidation will be the name of the game for the Indian real estate industry over the next five years.
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