Indias Residential Realty Sectors Prospects Appear Buoyant

Five Indicators That Hint At a Change

The realty sector of India, especially the residential sector, which has been languishing in the doldrums for the last few years, is showing indications of some buoyancy, if JLL, India (Jones Lang La Salle), a Fortune 500 company providing professional services and investment management specializing in real estate services, is to be believed. The realty sector which has been stagnating for the last few years is showing signs of reviving from October this year on an increasingly improving economic narrative. The macroeconomic markers and the recent steps taken by the government with the intention of bringing transparency and ease of business in the realty sector indicate at a possibility of a revival in the near future.

In a statement, Ashwinder Raj Singh, CEO, residential services, JLL India said, “India’s residential property market has been going through turbulent times for the past few years. However, things are looking up now with changes in the economy and various initiatives announced by the government.”

The Indian realty sector saw its worst decline in 2015-2016 with a stagnating market burdened with alarmingly high inventory levels, a gloomy outlook in demand and a squeeze on liquidity leading to plunging prices exerting a drag on new launches.

A JLL report for this period threw up some startling facts. New residential project launches in the period of January to March 2016 reduced by 6 per cent over that of the period of October to December 2015. Figures released for the last two years show that for the financial year 2015-16 the number of new launches at 1,81,294 units are a significant drop of nearly 16 percent over the previous figure of 2,16,082 units for the financial year 2014-15. Overall, sale of residential units showed a slowdown of 2.2 per cent with only 1, 58, 211 units being sold in the financial year 2015-16 in comparison to 1, 61, 875 units sold in the financial year 2014-15. However, the industry caught a glimpse of light at the end of the tunnel when in the first quarter of the financial year 2016, a total of 42,521 units were sold compared to 39,001 units that were sold in the preceding quarter, i.e. the fourth quarter of  financial year 2015.

Industry leaders and experts in the field of realty are optimistic that with the implementation of the Real Estate (Regulation and Development) Act 2016, which mandates the setting up of a Real Estate Regulatory Authority, will be a key reform measure in the vast real estate sector. It is felt that will add some bounce to the sagging confidence of home buyers and other end-users as it aims at greater accountability, investor protection, transparency and efficient working in the real estate sector. Some significant changes in the act also include builders now having to pay the prescribed rate of interest in case of default or delays to home buyers. It includes even small developers of residential projects measuring 500 square meters or eight apartments.

Shveta Jain, Managing Director, residential services of Cushman and Wakefield said, “The Real Estate Regulation and Development Act 2016 will encourage investments from foreign and domestic financial institutions and protecting the interest of the home buyers. Mandatory disclosures of projects, including details of the promoter, project land status, clearances, approvals, etc would increase the credibility of developers and would protect consumer rights as well.”

On further enquiry, JLL’s Ashwinder Raj Singh enumerated five significant points that indicate that

the real estate sector is on an up-swing. One of the facts indicating a perceptibly change in spending trends in the economy on hopes of a good monsoon leading to a revival in the consumer demand     in general and the real estate sector in particular, reducing inflation and the perception that the prices in the residential housing sector having hit rock bottom may now show an upward trend. Even the optimism being generated by the Real Estate Regulation Act, and other government projects like the Smart Cities Mission, AMRUT (Atal Mission for Rejuvenation and Urban Transformation), ‘Housing for All by 2022’. To top it up, the willingness displayed by banks to pass on the benefits of interest rate cuts, to the customer has the propensity to boost the residential housing sector.

The second important factor is on the price front where the rates have been fairly stagnant or seen a modest rise in the financial year 2015-16. It is interesting to note that while some cities like Lucknow showed an increase of 16.1 percent in third quarter of 2015, the NCR region of Delhi showed a price correction of five percent during the period April to June 2015 percent. However, with things changing for the better going forward, prices are expected to show a modest rise and this hold out promise for the sector.

The third factor of significance is the enactment of the Real Estate Regulation Act which is hoped will trigger a surge in consumer confidence and trust and will draw customers and investors back to the market in numbers. The affordable housing segment has seen rising interest and investment on the outskirt of major cities. Figures of sales in the financial year 2015-16 show that those properties below and up to the range of Rs. 5000.00 per square feet accounted for 60 percent of inventory sold.

While volatile global factors have the potential to affect the Indian realty sector, the present conditions of the Indian economy with the present low inflation rate combined with the low interest rates and a vigorous economy is expected to revive the residential estate sector in the mid-term and hopefully in the long-term.

Among other additional factors that may influence the creation of a more sector friendly sentiment, are the fiscal stimulus that the provisions in the recent Union Budget envisaged to provide for the supply and demand side of the sector, create enhanced and improved funding for the industry and smoothening the path for the setting-up of REIT (Real Estate Investment Trust), which has the potential to galvanize the sector. The trends indicated should show encouraging results by the fourth quarter of 2016 or by the first quarter of 2017.

It looks like good days lie ahead for the Indian realty sector.