In early 2004, home loan rates sank to a record low of under 7.5 per cent, thanks to the liberalisation of the Indian economy. Real estate investment was then an option only for the rich, but the low borrowing rates encouraged people from all income groups to step forward, which led to the average age of the Indian home buyer dropping from late 50s to mid-20s.
The opening up of FDI meant that the market then expanded at a never-before-seen rate, both size-wise and price-wise. In three years, prices were doubled, as were the number of constructions. And then, in 2008, it all came to a halt.
The Lehman debacle and the subsequent foundering of global economies were operative factors, but India’s real estate sector had also reached a stage from where it needed to mature.
Decline and correction
The slowdown was brought on by the sharp rise in property rates over the preceding years, and the rising number of investors—almost as many as end users in some cases. The result was a misleading demand assessment, and an adjustment was therefore only natural.
Today, however, real estate prices have corrected in most locations. Office and retail segments were impacted, but the greatest need for correction was in the residential sector.
This sector is more sensitive to non-amenable lending norms, and which also had seen the highest price appreciation.
Focus on affordable housing
We are now seeing a renaissance in the Indian real estate sector, with retail and commercial spaces being more in tune with actual market demand dynamics. In the residential space, developers who had earlier focussed on luxury spaces for IT/ITeS and HNI buyers, have started launching housing projects for the common man.
This development, however, is influenced by the overall performance of the economy. In the past, developers have reacted to growth in the market by diluting their focus on affordable housing and going back to luxury projects. That said, the incumbent government’s determined drive towards ‘Housing for All by 2022’ has brought in several new incentives for developers and buyers of budget housing. This will ensure that a good cross-section of Indian builders will retain their focus on affordable housing for at least a few more years.
Still, a demand-supply mismatch persists, and indicates that residential property prices will rise again, the first signs of which we are already witnessing. However, the market will not see the same fluctuation as it did a few years ago. The focus will continue to remain on affordable housing and mid-income housing in the residential sector; efficient buildings—in terms of both energy consumption and space utility—at locations with good infrastructure in the office sector; and well-researched expansion plans in the retail sector.
Impact of RERA on realty
The passing of the long-pending Real Estate Regulatory Bill is an unequivocal victory for the Indian realty sector. It will almost single-handedly revamp the way the sector works across the board, from developers, investors and end-users, to lending institutions, property consultants and brokers—and hopefully government agencies involved in the buying and selling of property too. It is by far the most decisive step taken towards transparency and the kind of standardised processes, procedures, and accountability guidelines that the industry requires to progress. This major reform will create a much-needed consumer rights protection umbrella for buyers, thereby increasing consumer confidence as well as creating lasting developer brands focussed on quality and timely delivery of their projects. During the next decade, we will see increased transparency, and the adoption of international best practices.
Promising times ahead
JLL’s biannual Global Transparency Index shows India’s tier I cities securing the 36th rank. The country has made improvements in overall transparency scores across all markets and achieved higher ranks for Tier I and II markets. Improved market fundamentals, policy reforms, and the strengthening of information in public domain were main causes, along with digitisation of land records and opening up of REITs.
India’s low score in the transaction process is expected to improve during the 2016-2018 assessment period, due to the Real Estate (Regulation and Development) Act (RERA). Unethical practices will be phased out, and smaller operators will merge into larger, more sustainable entities. In short, the immediate future looks promising for the consumer.
[Source:-The Hindu]
