Comeback of Residential Real Estate Market

Residential real estate, has been the subject of discussion with regard to its value and business output in India. Usually favored by several big developers across the country as a ‘strong sector’, it has witnessed its fair share of ebb and flow in the overall marketplace. Luxury housing shows strong chances of a comeback and office space transactions have been at an all-time high. Sustained by the transparency brought in by the Real Estate (Regulation and Development) Act 2016 (RERA) and goods and services tax (GST), first-time buyers and end users are making a comeback in the residential market.

Upsurge in disposable incomes, rapid urbanization, increase in monetary benefits for professionals and rise in nuclear families has resulted in an increase in housing demand thereby contributing to a swift comeback of residential real estate market. According to a report, real estate in India will become a $1 trillion market by the year 2030. Sales of residential units increased by 22 percent compared to the corresponding period in 2018, says India Residential Market Update – H 1, 2019, JLL.

Developers are now focused on delivery and construction of already launched projects across the top seven cities Mumbai, Bengaluru, Delhi-NCR, Pune, Hyderabad, Chennai and Kolkata. The supply of luxury housing has improved and more than doubled to 16,100 units in the first half this year across seven cities, property consultant Anarock has said. The demand of these luxury flats is now driven by end users – high net worth individuals and non-resident Indians, it added.

Greater transparency due to RERA and GST

Due to several structural changes proposed and initiated by the Government of India such as RERA, the sector is now experiencing higher transparency. Developers are now focusing more on ensuring fair practices and a professional approach towards timely delivery, pricing, development and other procedures. RERA has helped boost housing demand by empowering buyers, ensuring that serious players are better placed because of track of project completions and hence better customer confidence. Similarly, GST has also played a central role in reviving the market. The GST rate cut applicable from April 1, 2019, will further ease the sector and help boost housing demand. For under construction properties in the luxury housing segment, the rate is now 5 percent, down from 12 percent, while for affordable housing it has been brought down to just 1 percent from 8 percent. The GST Council has also done away with the Input Tax Credit system, which has helped to revive buyer sentiment.

Ever increasing housing demand

Housing demand in the country is at an all-time high. An ever-growing population, urbanization, rise of nuclear families, increased disposable incomes, and monetary benefits have become a vital factor for the constant rise in housing demand. With a surge of investment in affordable housing by large number of private companies, it will essentially power the residential realty market in the coming years. The Finance Minister recently announced a slew of measures to revive the economy including offering more credit support for purchase of homes and increased the tax exemption limit on interest paid on home loans. By increasing the deduction limit in housing loans, the government has made home loans attractive and EMIs cheaper for common man. Not only the buyers, but even banks and real estate developers will reap benefit from such a move.

Foreign Investor Interest

The boom and relaxation in FDI are also attracting interest from foreign investors to invest in India and many are seen tying up with the local developers in expanding their business. As the competition in the market is intense, builders are going out of their way to be different and provide quality service. Emmar Properties, of Dubai one of the largest listed real estate developer in the world has tied up with the Delhi-based MGF Developments to announce properties in Gurgaon. Other players include the Trump Organization, Hong Kong-based Risland Holdings and Japanese property firm Sumitomo Realty in collaboration with Krisumi Corporation is all set to launch the new Krisumi City Gurgaon Waterfall Residences. The project is backed by the collaboration of Sumitimo Corp, a Japanese Company and Krishna Group , Australian firm LOGO. Recently, Singapore-based Assetz invested in logistics and residential real-estate and Dubai’s Danube Home introduced its home interiors services.

Upcoming Tier 2 and 3 Cities

A resurgence of the tier 2 / tier 3 cities is being seen throughout the country. Many of these cities such as Ahmadabad, Indore, Coimbatore, Chandigarh, Jaipur and Kochi are seeing an increase in economic activity and infrastructural growth, to some extent reducing the outward migration to the metros. Quite a few have come under the Smart Cities program, which bodes very well for their real estate markets. A number of larger players have now expanded into tier 2 and tier 3 cities because of increasing demand for quality residential offerings there.

Infrastructure

The government has made a proposal of Rs 100 lakh crore towards infrastructural development. The development of new national and state highways will lead to the generation of new cities that will add to the growth of Indian economy. New railway routes, metro routes and airports will also lead to creation of new retail outlets within the premises which will pump fuel for growth. The Delhi Metro which already covers a large part of Delhi NCR is soon to become a denser network creating more realty opportunities for buyers as well as developers. The surrounding areas of Northern and Southern Peripheral Road (SPR), Kundli – Manesar – Palwal (KMP) Expressway, Golf Course Extension Road, Dwarka Expressway etc. have become a major property hub for buyers and investors because of well-developed infrastructure. All the major commercial and residential development is taking place in these areas.

Evolution of niche sub-sectors

Budding sub-sectors like co-living, student housing and senior living are rapidly flourishing across major cities. Private players and start-ups like OYO, Tribestays and PLACIO are also stepping into the real-estate sector with the co-living and student housing model. As a result, these sectors are gaining maximum traction and also being identified by foreign investors. According to a survey by Knight Frank, over 70 percent of millennials, aged between 18 and 23 years prefer co-living spaces. With the growing demand for co-living spaces and the phenomenon quickly growing across significant cities, developers are leaving no chance to fuel the needs of millennials.

Sources:
India Residential Market Report – JLL: https://www.jll.co.in/en/trends-and-insights/research/india-residential-market-update-h1-2019
https://www.financialexpress.com/money/residential-real-estate-market-making-a-comeback-heres-why/1686561/
https://economictimes.indiatimes.com/wealth/invest/real-estate-market-set-for-a-comeback-5-promising-stocks-from-the-sector/articleshow/70000796.cms?from=mdr
http://ficci.in/spdocument/23102/Co-living_Reshaping-Rental-Housing.pdf