Under-construction segment awaits clarity on GST rate cut
While the exemption of projects with a completion certificate from GST cheered homebuyers, no decision on the Centre’s proposal to slash the GST rate on under-construction properties from the effective 12 percent currently to five percent disappointed the realty stakeholders. The anticipation of a rate cut in the future is expected to put housing sales on a back burner, yet again.
RBI keeps repo rate unchanged
Unchanged repo rate in both October and December revisions of the monetary policy spelt relief for the realty sector. Though a slash would have helped the sector beat the gloom by easing out home loan interest rates, the moves were hailed since a hike at this time could have been detrimental to the growth of the real estate industry.
NBFC crisis: The final straw of black cloud on Indian realty
With the Non-banking Finance Companies (NBFCs) undergoing a liquidity crunch, small developers who largely survived on finance raised from NBFCs are unable procure funds for ongoing or new constructions. Noticeably, NBFCs account for over 50 percent of the total developer financing, estimated at almost Rs 4 trillion in FY 2018.
RERA progresses in the North East
With the northeastern States announcing plans to notify RERA rules soon, the Act took a major leap with these States being one of the last, only after Jammu and Kashmir, to implement the Act. West Bengal, too, implemented its version of RERA – Housing Industry Regulation Act (HIRA) and launched its portal, despite the Centre urging otherwise.
Centre plans to sanction 1 crore houses under PMAY
Out of the 68.5 lakh houses approved under PMAY (U) in 2018, around 35.67 lakh are under various stages of construction. The Government now plans to sanction the construction of another one crore houses to meet the objective of ‘Housing for All by 2022’.
An improvement in the home buying sentiment by Q3 2018 had set the stage for the festive quarter of Oct-Dec 2018. Embracing the best deals in the market, Q4 2018 marched ahead with the same momentum in terms of property enquiries and sales as the previous quarter. The industry saw a silver lining casting over the Indian realty landscape as property prices across metro cities such as Mumbai, Bangalore, Pune, Chennai and Ahmedabad firmed by a percent, each, QoQ. While average weighted prices in Delhi NCR and Kolkata maintained status quo, Hyderabad, like many previous quarters, led the pack with a two percent rise in capital values, QoQ.
Affordable housing remained the flavor of the season as majority sales and launches across cities were reported within the Rs 40 lakh budget bracket. City fringes, holding majority of the total share of affordable housing stock (41 percent), were put at the center stage of all real estate activities. The restraint on new launches continued, helping cities offload the existing inventory. Although the rate of absorption declined, QoQ, unsold stock reduced in most cities and came down to 4.68 lakh units in December 2018 from nearly 5.20 lakh in 2017. With around 1.5 lakh unsold housing units, the capital and rental landscapes of Delhi NCR continued reeling under pressure with timid hopes of price appreciation. The proposal to slash GST rate on under-construction units to five percent, from the existing 12 percent, led homebuyers to defer home purchase, yet again, impacting the overall absorption of housing units across cities.
While the quarter seemed positive with over Rs 11,000 crore Private Equity (PE) deals in Jul-Sep 2018, the liquidity crisis faced by Non-banking Finance Companies (NBFCs) posed as a threat to the growth of the sector. Like the year 2018 saw the consolidation of many small scale developers, the year 2019 is touted to be a period of consolidation of the NBFCs. The upcoming Union Budget and the general elections hold the baton to the growth of the realty sector. Overall, the year is expected to reap the returns of the regulations introduced in the sector and tread a growth trajectory.
INDIAN REAL ESTATE
The recovery phase of the Indian real estate sector continued from Q3 2018 to Q4 2018. With the registration of over 34,893 real estate projects and 27,073 real estate agents across the country, RERA played a crucial role in establishing homebuyer’s confidence. The augmenting supply of affordable homes, too, propelled the price-sensitive homebuyers to explore the market. The festive deals did little to lure the aware and cautious buyers who remained inclined towards products with the best deals in terms of pricing, payment plan and offerings.
Property sales tread unwaveringly across cities, QoQ. Homebuyers remained price sensitive and largely preferred to purchase homes priced under Rs 40 lakh. In such a scenario, the most affordable city, also driven by the IT sector – Hyderabad, reported the fastest pace of property absorption, resulting in a two percent uptick in average property prices, QoQ. Buyers’ preference for RERA-approved homes, proximity to transit and economic corridors, and ready or near-ready units remained unchanged. Under-construction units, therefore, witnessed muted sales, with Mumbai being an exception. In Mumbai, about 60 percent of homebuyers, looking for a home priced between Rs 75-90 lakh, preferred buying under-construction units, given they were covered under RERA.
With its virtue of protecting homebuyers from the unscrupulous activities prevalent in the real estate sector, RERA instilled hopes of a revival as several States took initiatives to either implement or improve the efficiency of the Act. While the nod of the six north-eastern States to soon notify their RERA norms cheered the market, Kolkata’s stance on adopting Housing Industry Regulation Act (HIRA) remained a contended issue.
The Government’s endeavors such as workshops aimed at raising the awareness of RERA amongst stakeholders, and the formulation of a committee to effectively tackle the difficulties coming in the way of implementing RERA helped strengthen the faith in the Act. Maharashtra continued as the torchbearer in the execution of RERA with over 18,405 projects and 17,204 real estate agents registered so far. Telangana and Tamil Nadu, on the contrary, lagged behind with just over 16 and 778 projects registrations, respectively, by the end of December 2018.
Infrastructure advancements played a key role in giving a thrust to real estate sentiment this quarter. While Delhi NCR saw the commencement of multiple metro lines and the much-awaited KMP Expressway; Mumbai, too, basked in the approval of projects worth Rs 33,000 crore. The initiation of the Coastal Road project, worth Rs 12,000 crore, also instilled hopes of a realty boom across locales spanning Navi Mumbai and Western Suburbs of Mumbai.
Affordable housing took a huge leap across the country with States announcing big-ticket plans and commencing work in this direction. The latest data released by the Centre states that almost 2.75 lakh beneficiaries have availed the benefits under Pradhan Mantri Awas Yojana – Urban, so far. The National Housing Bank has granted an interest subsidy of Rs 3,270 crore until November 2018. With over 12 lakh homes completed under the programme, and another 63 lakh sanctioned for construction, the affordable housing segment is touted to be in the forefront in 2019.
The rental market continued to grow across cities with a 2-4 percent uptick in average ‘asks’, YoY. Delhi NCR, displayed muted growth owing to the huge pile-up of rental inventory. The upcoming quarters are likely to witness a steady rental landscape as homebuyers await clarity over the changing GST slab and the results of general elections 2019.