After the Bumpy 2016, Realty heads toward Consolidation

Real estate sector is unarguably a vital sector for India’s economy being the second largest employer in the country after agriculture. It has faced chaotic times in 2016 and is staring at another challenging year ahead, following disturbance caused by reforms like the Real Estate Regulation Act (RERA) and Demonetization.

Though not a dreadful year for the Real Estate Sector, 2016 was certainly a difficult one for it. Despite sluggishness in sales instigated by weak buyer sentiment and Demonetization taking a further toll in 2016, most real estate developers are hoping that 2017 will bode well for the sector, steering transparency and accountability into the sector.

While some noteworthy reforms took place in the Realty Sector during the year, overall, the year can be divided into two decisive phases.

While on the one hand, the tendency of falling real estate sales – a norm since 2013 – was detained; the impact of Demonetization and Real Estate (Regulation and Development) Act (RERA) was evident in sales numbers on the other hand, with Government registration offices and developers both suggesting a huge drop in new property off take.

The first 10 months of the year broke the trend of falling sales in the residential sector, a trend which had continued unabated since 2013. Sales leveled at about 50,000 units a quarter in the first three quarters of calendar year 2016, down from almost 1.5 lakh units a quarter in CY2013. Sales for the large, organized players hit an all-year high in October, riding on Diwali and increasing optimism in buyers’ minds. This optimism surfaced from a stabilizing GDP growth rate and the many small projects that had been launched by the Centre over the past two years.  However, post-November 8, when Prime Minister Narendra Modi announced Demonetization of Rs. 500 and Rs. 1,000 notes, sales in the sector fell a massive 40 per cent.

Nifty Realty had closed at Rs. 193.80 on 8th November 2016 while on 4th January it closed at Rs. 177.25 showing a decline of approximately 9%. However the Index picked up a little after its declining spree till 27th December on which it had closed at Rs. 154.95.

 

New Year’s Gift:

During the address on the New Year Eve, Prime Minister announced some New Year gifts for the public that got a cherry on the top when several leading banks in the country cut its lending rates by almost 0.9% or 90 basis points. Both the news now carries heavy weightage for the realty sector of our country which has high hopes from 2017.

During the address, two new housing schemes were declared mentioning the fact that there are still millions of people who don’t own a property either due to affordability factor or high interest rates which consequently increases the EMIs. For the urban poor, in 2017, a rebate of 4% and 3% would be provided on home loans up to Rs 9 lakh and Rs 12 lakh respectively. Also, for the new housing or extension of housing taken up on 2017, a rebate of 3% would be provided on home loans stretching up to Rs 2 lakh. PM Modi further added that the number of houses being built for the poor under the Pradhan Mantri Awaas Yojana (PMAY) in rural areas was being amplified by 33%.

With announcements such as these, the country is inching closer towards accomplishing the dream of building 2 crore affordable housing units for the urban poor by 2022. When lending rates are cut down, it allows the market to create fresh demand, and in this case, developers across the country will concentrate on developing affordable housing units which will be supported by reduced lending rates, and gladly accepted by the buyers.

 

Five Ways Homebuyers will Benefit in New Year:

• Tapered Borrowing Rates:Some big Banks have already slashed the borrowing rates and others are following the path. This can set off a sequence, wherein lower rates of interest will direct borrowers to avail more loans at attractive interest rates. In the future, due to low returns, it will not be practical to park one’s savings in bonds or fixed deposits. So consumers will prefer to buy property in the future.
• Price Cut Possibility: Apart from lower interest rates, there is also the likelihood of further price cuts, predominantly in case of luxury housing and in the resale market. As per a few reports, the prices of luxury houses have already declined by more than 30% in a few circles in Mumbai and Delhi. This will remain so for some time, depending on how quick the economy recovers from the Demonetization impact. If the much-promised crackdown on Real Estate happens this year, further drop in prices can be seen. This will surely benefit homebuyers.
• Excellent Deals Likely: Homebuyers may get excellent deals in the market as the industry has just started to adjust to the new rules.  This holds true particularly for the first quarter of the year as most developers will look to sell existing inventory. New launches will get affected early on. So the demand for existing inventory and ready-to-move-in homes will increase. The rise in demand will make sure that prices – mainly in the primary segment — remain firm and start the ascent once again.
• Rising Transparency and Consumer Confidence: The passing of RERA (Real Estate Regulation and Development Act 2016), the Benami Transactions Act and then the demonetization move will make certain that going forward, the sector will shed much of its historic pollute and become more transparent. These moves will ensure improved transparency, better investor confidence, and enhanced access to funding and higher FDI.
• Boost to Affordable Housing: The Modi government’s attention on affordable housing has aid in making the term more acceptable to developers. From the previous terror of being tagged as developers who build affordable homes, the community is now not only entering this section with poise but also talking about it openly. There is now significant goodwill attached to such a move, and affordable housing obviously makes distinguished business sense.

 

Stock and Index Movement:

In past week trading Nifty Realty was the top gainer with 6.28 per cent upmove. The Index had lost the most, approximately 19% in three month and has begun the recovery since last month.