According to a rating agency, it wouldn’t be unwise to pin hopes on the correction of residential property prices. The Real Estate prices in this segment are expected to rise as much as, by 5% in the following two to three quarters. It also added that this not the right time to conclude an improvement in the buyers’ sentiments. A correction required to prompt sales and bring relief to the developers has been awaited for long.
As stated by the rating agency, the residential Real Estate sector will be driven by the demand of end-users in the category of mid-priced and affordable housing. With the major realty markets experiencing inventory clearance, the existing low prices may stand still in the upcoming 3 to 4 quarters.
Small Cities, Big Sales
The major markets have followed the smaller cities, which might have experienced an improvement in sales. But on a whole, sales have remained restricted to few markets, thereby not indicating a remarkable change in the property buying sentiment of Indians.
The Southern Region will lead the marathon of project completion while the Northern and Western Region will closely follow it, resulting in a universal development in the housing sector.
As noted by the rating agency, the peripheral areas of the important cities, especially the Metros, have piled up huge unsold inventory. Most of the buyers are not interested in spending a lump sum simply to own dream home in the suburbs or remote locations of the leading cities.
The developers are required to focus on redeveloping and building projects that will offer buyers easy access to civic amenities and public transport. They are required to choose locations that are in proximity to the central point of the city. This is the solution to boost sales, as stated by the aforementioned rating agency.
Housing Inventory: A Hindrance in 2019
The financial year of 2019 to 2020, being hit by the inventory in the affordable and mid-budget housing segment is likely to witness a fall in the operating margins to a level of 27% to 30%. Irrespective of this, the mid-segment and affordable housing won’t lose their craze and cause the Real Estate industry to keep going.
Healthy Implication of Sales
With the RERA and GST coming into effect in 2017 and 2018, the sale figures got a bit distorted during the activation of these two reforms. But, things started falling into place during the financial year of 2019. The stability of high demand in the affordable housing market of tier I, II and III cities, has been acting as the spine of property sales in the Real Estate industry.
The Charm of RERA
The process for acquiring permissions is required to make more transparent by the Government, in terms of the RERA structure. The rating agency opines the requirement of a single-window clearance authority, which is bound by time, for smooth execution of project completion and transactions.
The agency holds that the individual states should not have been left with the freedom of RERA activation that has given them the scope to dilute rules, form individual regulatory systems and appellate tribunals. Instead, a structure like GST Council should have been used for the implementation of RERA, to make it work full-fledged. Much of RERA is still in the need of improvement.
25% of the states have still not notified the RERA rules while the registration process and web portals are lacking in 30% of the states. This is the status after more than 1 and a half years following the enactment of RERA.
Dull Show by REIT
Private developers mostly garner funds from the HFCs and NBFCs, both of which are stressed due to the ongoing liquidity crunch that hit them in the second half of 2018. The industry is likely to be affected by this funding issue for some time.
Coming to REITs, the listing of assets is expected to be postponed for the time being as the secondary markets witness sizeable demand for properties in the commercial segment. Besides, Singapore and other such deeper markets possess listing system, which is more favourable.
Another factor responsible for delaying the introduction of REIT listing in the Indian industry is the volatility caused by the liquidity crisis in the markets that are becoming prominent and the construction-related sectors. Thus, 2019 may not see the industry accept REIT listing as analyzed by the rating agency.
Commercial Real Estate on an Easy Ride
Around 550 to 575 million square feet area is leasable in the commercial segment and is likely to reach 600 million square feet before 2019 ends. The number of projects nearing completion has increased in the markets of Mumbai Region, Bengaluru, Kolkata and Hyderabad. As told by the rating agency, Amravati, Thane, Hyderabad, Bengaluru and Kolkata will contribute to the expansion of office spaces.
The high rental yields and demand of leasing office space is evident from the double-digit growth reported by organisations related to leasing businesses. This growth has been attributed to the rising number of rents and the addition of more leasable space. Selling and buying remained active in the commercial segment with purchases by foreign institutions as well.
Co-Working Space Inventory Increases
As reported by the rating agency, about 7 million square feet of co-working spaces are available across the country’s leading cities. Growth in the inventory is estimated to reach 15 million square feet in a couple of years.
With the focus of most firms having shifted to flexible office locations, the inventory of co-working spaces is on a constant increase, especially in the metro cities. The non-metro cities too are not far behind with startups and commercial spaces doubling up.
Becoming popular among both tenants and landlords, co-working spaces are cost effective for the former. The major markets of this segment are, namely Hyderabad, Delhi, Chennai, Pune, Bengaluru, Mumbai.
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