Deregulation will be the key to future success of the sector
The year 2016 brought in ground breaking changes and transformation in the real estate industry that had not been witnessed for the past two decades. The various policy initiatives taken by the government will boost transparency and credibility of the sector in the long run.
Deregulation will be the key to the success of various government initiatives such as Housing for All by 2022, AMRUT, Smart Cities. A major impediment to real estate development in India remains the approval process. While the government has done a lot to ease the functioning of the real estate sector and protect the consumers, it must get the statutory authorities responsible for clearing the projects within the purview of law. Administrative reforms should be made to facilitate quicker approval process which will help developers complete and handover projects on time. This will infuse confidence in home buyers and make it attractive to global institutional investors as well thereby providing a huge opportunity for the sector to grow and mature keeping customers as priority.
The Government has rightfully laid great emphasis on improving India's ranking in the World Bank global Ease of doing Business Index and continuously monitors the same looking at improvements in ranking as a success. The same World Bank released an Ease of obtaining Construction Permits Index. Here India ranks a shocking 183 out of 187 countries. We are in the same club as war torn countries where institutions have collapsed and literally offices which accord approval have been bombed to rubble. It would be welcome if the Government can look into this as well and take pride to improve our rank on this index also.
In terms of policy changes in 2016, Demonetization seems to have had the maximum impact on the economy. While it has led to short term disruption, a long term analysis indicates it will positively impact the economy. Minimizing cash transactions will bring down the unorganized players and formalize the banking system. Keeping a hawk-eyed watch on cash transactions, the Government is trying to get a grip over unfair trade practices, one step at a time. Demonetization along with deregulation will work in favor of the sector and produce the desired results.
What’s in store for the buyers in 2017
It will be an extremely favorable year for home buyers on back of strong reforms implemented in 2016. To begin with, borrowing rates are expected to taper off in 2017 given the huge influx of money in the banks post demonetization. This can set off a cycle, wherein lower rates of interest will direct borrowers to avail more loans at attractive interest rates. In future, owing to low returns it will not be feasible to park one's savings in bonds or fixed deposits, so consumers will prefer to buy property in the future. A simple back of the hand calculation shows that a 1% reduction in home loan rates will lead to almost 7.5% savings in EMI, thereby putting more money in the hands of the consumers. The official economy will see a positive growth in the following months, elevating the purchasing power of the consumer, encouraging the consumers to invest more.
Home buyers can get excellent deals in the market as the industry has just begun to adjust to the new rules. This holds true especially for the first quarter of the year as most developers will look to sell existing inventory, so consumers must make the most of this opportunity and purchase property at attractive prices. New launches will get impacted early on so the demand for available inventory and ready to move in homes will increase. The rise in demand will ensure that prices remain firm and start the ascent once again. So, it will only benefit those buyers who act swiftly and purchase the property in the interim period.
Developers stand to gain too
While the first three months may test the waters for the real estate sector, as the year progresses the tide will turn in favor of the developers as well. There will be a spurt in demand as buyers will return to the market owing to attractive rates and good deals. The coming year will also see the demand shift from secondary market to primary construction owing to erosion of cash-linked sales. This will lead to better inventory utilization and ensure launch of new projects in the second half of the year. We can also expect significant foreign investments in the sector and increased participation from financial institutions, owing to better transparency and credibility post the policy changes initiated last year.
Also, 2017 will see consolidation in the industry on the back of the changing economic scenario that is likely to weed out devious real estate developers. The focus will be on creating products for varied segments of buyers instead of only catering to the luxury market. Demonetization will not affect the established players as transactions take place only through the legal route. The commercial real estate sector will also not be hurt as they cater to office/industrial leasing where all transactions are done through banking channels.
The demographics of our country ensure that the real estate sector needs to grow to meet the demands of an ever growing economy. India is currently growing at 6% per annum, but could reach double digits by 2019 if deregulation is in place. The future of India and the future of real estate are intertwined with each other.