The real estate sector which faced turbulent times this year, is staring at another challenging year ahead, following disruption caused by reforms like Real Estate Regulation Act (RERA) and demonetisation. But all this may augur well for the real estate in the coming times. Amidst prevailing uncertainty, the new year may well see real estate firmly put on the path of transformation and consolidation, towards more stability and healthy growth.

The year 2016 started on a promising note as real estate had a smooth start. But much against the the expected revival, real estate especially residential real estate faced headwinds in terms of weak demand and muted sales in the backdrop of large scale delivery defaults, developer-buyer face off, unaffordable prices and high interest rates. The introduction of RERA, added further confusion to the prevailing chaos and finally towards the end of the year, demonetisation badly hit the struggling sector, with the year coming to a bumpy end.

It was a gloomy year for housing market. The ever widening trust deficit between developers and home buyers added to the woes of residential real estate, especially because of large number of developers not delivering their homes on time. The top seven cities in the country have over 1.5 million units delayed between 14- 30 months, with one fourth of them in NCR. And due to buyers’ lack of trust, home selling became extremely difficult. Even those who took a buying decision, they preferred ready-to-move homes, in order to secure their investment. By the end of Q1, 6.6 lakh units across top 8 cities remained unsold, with NCR topping with 2 lakh unsold units. Even the festive season couldn’t be of much help as hardly did the sales start picking up, demonetisation struck the blow.

Demonetisation will adversely impact those real estate developers who follow business model with large cash component.There will be likely downward pressure on prices as these cash- strapped developers will be compelled to liquidate their inventory at discounted rates to generate cash flows. However, it will have a positive impact on home buyers, especially buyers of affordable homes who invest through home mortgage and do transactions through cheque. Going forward, demonetisation will bring in more transparency in real estate transactions and bridge the gap between primary and secondary market prices.

While residential real estate was found struggling, the commercial real estate saw healthy demand (26.4 msf by 3Q 2016), with total yearly pan India demand expected to touch 34.2 million mark, driven by sectors such as manufacturing, logistics and FMCG. Gaining further strength, commercial realty is likely to see a higher demand of 38- 40 msf in 2017, with cities like Chennai, Hyderabad and Pune driving the growth.

The theme song of the year was affordability, with affordable properties clearly dominating the property landscape across cities. With developers increasingly taking to affordable housing in view of rising demand, about 59 percent projects were launched under this segment. The developers also resorted to developing compact sized homes to make them more affordable. And considering that the residential real estate was still facing lot of stress, the government, in line with its ‘Housing for All’ mission, also put its entire focus on affordable housing. In this year’s budget, developers were incentivised by way of 100 percent service tax waiver for affordable homes of sizes up to 30 sq mts in metros and 60 sq mts in non metros. But to promote timely delivery, the tax benefit was linked to completing construction within 3 years. There was a rebate of Rs 50000 p.a on housing loan interest for first time home buyers in affordable segment, with loan not exceeding Rs 35 lakh and property value not exceeding 50 lakh. The rental housing also got a boost with HRA hike from Rs 24000 to 60000.

There were many positives in the otherwise dull and difficult year. It was a watershed year in a sense that it was a year of reformed, regulated and reoriented realty. It was a year that provided a protective shield to home buyers by way of passing of RERA, promising a transformed and transparent realty with fair transactions. The passing of Goods and Sevices Tax (GST) Act, was a positive move towards simplifying tax system and making it more predictable for investors. The year saw putting in place disclosure norms for Real Estate Investment Trusts (REITs) along with detailed norms for public issuance of REITs. The abolition of Dividend Distribution Tax, paved the way for making REITs financially viable for retail investors. In order to help the ailing construction sector tide over the crisis, reforms were introduced to speed up resolution of disputes and ensure that construction companies investments are not stuck in arbitration. Further , amendments to Benami Transaction (Prohibition) Act were made to introduce stringent rules and penalties for benami transactions i.e transactions in fictitious names. All these reforms and policy initiatives will go a long way in regulating the sector and making it more attractive for domestic and foreign investors.

Notwithstanding the bumps faced by real estate this year, the positive measures have put the sector firmly on the path of long-term sustainable growth. Though 2017 .may well start on a tepid note due to massive disruption caused by monetisation, yet a tax-friendly budget, coupled with rationalisation of property prices,lower home loan rates and implementation of RERA, GST and Benami Act, may improve demand and significantly push up sales, paving way for a more organised, regulated , reliable and investor- friendly real estate.

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