In many ways, calendar year 2013 has marked a period of transition for the real estate sector, taking it to a higher level on various fronts. To begin with, the Indian economy as a whole has witnessed a rather bleak growth during the year 2013. The Indian Rupee plumbed a historic low against the US Dollar, which escalated costs and reduced property transactions. Inflation reigned at rather high levels and benchmark interest rates were repeatedly raised by the RBI in order to keep inflation in check. These economic factors impacted the real estate industry in two ways. Firstly, it experienced a hike in the cost of construction materials, especially due to higher inflation in the transport sector. Secondly, with the uncertainty caused by rising interest rates and lower economic and business growth, potential customers withheld their decisions to purchase homes and commercial spaces, and even retail spaces saw less demand. All this resulted in slower sales in the sector.
In 2012, eight cities, Bangalore, the NCR, Chennai, Mumbai, Kolkata, Ahmedabad, Hyderabad and Pune, witnessed 196,846 units of new launches. However, there has been a drop of 12 % in new residential project launches in 2013 as over 2012. Total estimated unit launches across these eight major cities of India were 172,500 units.
With India’s national housing shortage estimated at 18.78 million homes, there exists a significant potential demand for affordable homes across the country. But the Luxury segment demand has fallen, due to slow economic growth, political instability, high inflation as well as higher cost due to home loan interest rates. But we do expect that the sector will bounce back in times to come, if sufficient support from for the sector from the government is forthcoming.
According to some estimates, residential real estate prices across the country fell between 1 to 5% across most of the active real estate markets of India. Throughout 2013, property prices in most key property markets remained stable at a broader level, exhibiting a rise of 10 to less than 10%, and some even saw a minor drop.
REGULATORY FRAMEWORK
During the past year, and a little earlier as well, the government introduced modifications to existing legislation that were expected to change the face of the real estate industry for the better, boosting its growth and making it more transparent. Steps taken included:
- a. FDI in multi-brand retail: In September 2012, the government finally implemented the much-debated policy on FDI which permitted FDI of up to 51.0% in multi-brand retail. The entry and spread of foreign retail brands will certainly give a boost to the real estate market as it will involve the setting up of outlets and malls.
- b. Real Estate Investment Trusts (REITs): At a time when the real estate sector was facing a liquidity crunch and poor sales, the Securities and Exchange Board of India (Sebi) reinitiated the debate on introducing REITs in the country. These trusts are expected to introduce globally-accepted funding practices to the real estate sector and therefore, revive the interests of both domestic and global investors. If introduced, this financial vehicle will serve two purposes. It will offer investors an opportunity to invest in real estate and enjoy a regular income through an investment avenue less risky than under-construction properties; it will afford an easier exit route as well. At the same time, it will make stable funds available to developers and ensure their project funding is not left to the vagaries of the markets.
- c. The Real Estate (Regulation & Development) Bill, 2013: This Bill was approved by the Union Cabinet on June 4, 2013 and will be notified as a statute once it receives the assent of the President of India for implementation across all States and Union Territories in the country. Prepared after extensive consultations with states, experts and stakeholders, this Bill would provides a uniform regulatory environment to protect consumer interests, help speedy adjudication of disputes and ensure orderly growth of the real estate sector. A pioneering initiative to protect the interest of consumers, to promote fair play in real estate transactions and to ensure timely execution of projects.
- Land Acquisition Bill: The historic Land Acquisition Act, to provide just and fair compensation to farmers, has now come into force from January 1, 2014. The new law stipulates mandatory consent of at least 70% for acquiring land for public-private-partnership (PPP) projects and 80% for acquiring land for private companies. It also provides rehabilitation and compensation to farmer four times the market value in rural areas and twice the market value in urban areas.
- LOOKING AHEAD
With 2013 having faded into the past and 2014 having already dawned on us, it seems like the real estate sector can now look forward to a more dynamic time in the months to come. Prospective governments ought to begin planning their approaches to solve the problem of housing shortage in India. Primarily, it would be important to address the pressing need in the EWS (economically weaker sections) and LIG (lower income groups), which currently account for 95% of urban housing shortage in the country.
While owning a home is a basic and valid dream, the prospect of renting houses should be encouraged with appropriate legislative facilitation. This will ensure a regular stream of investment into housing projects from investors who can expect returns in the form of rent and capital gains. Once the housing stock is adequately built up, it will automatically translate into a larger market for home owners too.
Progress in the real estate sector hinges on communication between the Government, and stakeholders such as builders, builder associations, financers and end-users. The Government needs to take urgent steps to put in place infrastructure for single-window and online clearances for projects across the country. The real estate sector also needs government support to deal with acute shortage of trained manpower, and technology upgradation. Granting industry status to the sector will also help immensely.