Year 2019: The Year of Consolidation, Delivery & Growth!
To “expect the unexpected” was the theme of the year 2018, especially when it comes to the peaks and troughs of real estate sector in the year gone by, while it all looked positive with Central government’s renewed emphasis to bring back some life in otherwise reeling Housing Sector, passing of Real Estate (Regulation and Development) Act (RERA) to clean up bad apples and then the Pradhan Mantri Awas Yojna to drive the low cost affordable housing right at the forefront of real estate activity in India.
At the same time it was also the year where homebuyers were on streets asking for their rightful deliveries, which led to an increased political and judicial scrutinization of errant real estate developers, and then off course the effects of demonetization and GST which were prevalent throughout in every part of the Indian economy including the real estate sector.
To be honest no one would have staked on 2018 on being such an eventful year, but now that the curtains have drawn on an year gone by it’s easy to predict that each and every event of last year will have an impact on the how the next may turn out to be and at present the wholesome of that is Consolidation, Delivery and Growth of the sector.
Market Consolidation
As it stands right now, there has been a huge push towards consolidation by majority of the Real Estate Developers across the country, and the last quarter of the 2018 saw Developers whole heartedly consolidating their resources to bring in their businesses in alignment with the mood of the nation. Homebuyers were on the streets, and the political class was rooting for them, with Judiciary including the Honourable Supreme Court serious about cleaning the sector, and then off course came the much awaited Real Estate (Regulation and Development) Act (RERA) and suddenly announcing new projects, or buying new land parcels to expand respective businesses was the thing of past, and the sector got busy in consolidation to make sure on time deliveries was not anymore a marketing a slogan, instead a necessity to avoid penalties and prison.
It also helped that RERA had brought in a provisions to make sure that at least 70% of funds collected from homebuyers were now escrowed to a dedicated bank account to avoid any fund diversion. It also helped earnest developers who no longer had to commit early deliveries to the perspective homebuyers, since no one in the market could now claim false realistic deadlines and put pressure on the guy next door.
While it surely did start in 2018, this consolidation of the sector will carry forward to 2019, as huge amount of promised inventory is yet to be delivered, and there is no letting down from the bureaucratic, political or judicial front on the issue. Also in an after RERA scenario, no developer will think about announcing a new project unless there is adequate availability of funds and liquidity before the commencement of the project, so why no focus your energies in bringing in the much needed consolidation of business.
Delivery
If the first quarter of the year will be all about consolidation, then the next quarter is earmarked for what seems to the logical end... the Delivery Phase and that’s in every possible way is the best way forward. While developers are busy consolidating, there has also been an increased interaction with the other stakeholders of the industry, including the political class and bureaucracy of the sector. The political leaders want these issues to be resolved and hence regulatory authorities now more than ever have been more flexible to come to with delivery specific frameworks, and besides the stick, there are also some carrots on offer. In the last month of 2018, Greater Noida Development Authority announced that it was willing to give Temporary Occupation Certificate to Developers before clearing all dues, so that Homebuyers can get there deliveries, and developers can make payments to GNIDA after delivering the project to Homebuyers and in the process also generate funds thanks to the payments due to possession by the homebuyers, to ease the liquidity crises for the developer, and partially this kind of out-of-the-box solution has only been possible because of Chief Minister Yogi Adiyanath’s personal resolve to make sure that Western UP in the National Capital Region, otherwise notorious for its delivery related issues, can clear it’s slate, hence multiple periodic meetings between all stakeholders including CREDAI, local Developments Authority official and Political Leaders have made sure that deliveries are coming in big batches, and anything to facilitate that is being implemented. The coming year will not only see loads on deliveries from the projects in their final stages, but also of ready-to-move in projects that were stuck due to regulatory framework earlier.
Growth
For an economy to sustain it has to grow, and a sector that contributes nearly 5% of the GDP it’s equally important to grow as well. Yes the country’s second largest employer which is supporting more than 120 ancillary industries along the way, it’s important for Real Estate sector to keep contributing towards the cause of economic growth of the nation, and 2019 may just do that, since with consolidation leading to deliveries it will not just bring back the liquidity in the business but also consumer confidence back in the sector. Also for majority of Developers the after delivery stage will lead to new projects and new announcements, leading to the much awaited cycle of growth in the sector. With emphasis on Housing for All 2022, and initiatives like Pradhan Mantri Awas Yojna (PMAY) focusing on big delivery numbers for Affordable Housing, there is a lot of growth on anvil and with new legislations and regulatory reforms that are now in place the new growth is expected to be more controlled and consolidated rather than the one fuelled by fly by night operators, which was obviously a long desired goal of all honest stakeholders of the sectors.
A lot needs to done...
Even thought the New Year seems to be a period of new opportunity for the sector, it is not something that can happen in a vacuum, the sector has just started consolidating and more than ever require regulatory and legislative support, while there is a lot of onus to deliver projects on time, but still no such pressure seems to be exerted on regulatory authorities to give approvals on time. The long awaited demand of online single window clearance for the projects is also biting the dust and so is the demand for industry status for the real estate sector to secure clean and low cost funding for the projects.
At the moment the growth areas seem to be affordable housing due an concerted emphasis on low cost housing projects seem to be sprouting across the nation thanks to Pradhan Mantri Awaas Yojna, and as usual like always the Luxury Segment seems to untouched by the vagaries of the economy, there is huge requirement to incentivise the country’s middle class towards their dream home, and some immediate steps should include subsidising middle class housing loans, along with increasing the exemption on interest on home Loans to at least 5 lakhs per annum.
The recent announcement that the government is likely to consider reducing GST from 12% to 5% on payments made for under construction houses flats may look good on paper, but it also comes with the stipulation that government may do away with input credits available to developer at present, change will make housing affordable on paper but practically it increase cost of construction and this is where move becomes counterproductive.
Since input credits help rationalizing the input costs incurred during the construction, including tax levied on raw materials (like cement that can incur a whopping 28% GST) to significantly contribute towards making housing more affordable, removing input credits for developers will significantly increase the cost of construction which will finally be passed on to the buyers.
Also at present there is no GST on ready-to-move apartments and it’s still not known if that continue to happen or not, but then again there is also a silver lining that next year may see almost all the items coming in 12%-18% GST tax bracket, which again may have a huge positive impact on the cost of project.
So all in all while there is a huge potential to look forward to in the coming year, it fair to say that every stakeholder has it’s part to play in the process.
