India’s real estate market is expected to reach 180bn US$ by 2020. Steady growth of nuclear families, urbanization, rising household income and need for hybrid spaces has been the key drivers for growth of real estate market. In May 2018 construction of more than 150,000 affordable houses was sanctioned. This step not only ensured boosting up of the real estate sector, but also ensuring one step closer to cater every family’s dream.. That is to have a house of their own, a more affordable one.
Year 2017 didn’t prove to be a good one with markets slowing down that too when the year had just begun. The reason was clearly visible. It was due to the game changing move by the government, demonetization!! Things didn’t settle down well as RERA and GST required some time to dissolve well in the economy. But before 2017 could end, property prices became stable. According to one report, RERA, GST and REIT will help in stabilizing and recovering to what was lost in 2017. But new laws and regulations take some time to settle down.
For 2018, we quoted following trends:
RERA is here, have no fear!
The act brings clarity in issues like delay of projects, price, and quality of construction and ensures fair practices are carried on protecting the interest of buyers and impose penalties on law-breaking builders. According to a data, last 10 years have witnessed many projects being delayed up to 7 years. Reasons for the delay can be many like diversion of funds to some other project, regulatory changes, environment ministry and other related authorities and land acquisition. Some builders during that time used to sell projects to investors without proper approvals that resulted in bad quality of construction, projects stuck in legal issues. Whatever the reason may be, before the RERA Act, it was the families who suffered the most.
Here are some highlights of RERA that could surely wake up the investor in you.. again!!
- Every state should have a regulatory body that can resolve any dispute within 120 days timeframe.
- 70% of the money collected from respected buyers should be put in a separate account to ensure that construction cost of the project is met. Not only this, it will also ensure that construction is completed within the decided timeframe.
- Developer’s liability for structural repairs is increased to 5 years (2 years previously).
- Now buyers will have to pay ONLY carpet area (area within walls).
- Residential project launches witnessed 8% fall after implementation of RERA. Majorly witnessed in the NCR region.
- Complaints about unregistered projects are filed free of cost until 90 day period granted to the builder to register project lapses.
- Developers now cannot delete any document they upload on their website. This ensures proper and genuine content for the public so that any discrepancies can be ignored.
REIT is a treat!
For all the investors out there, here is the chance to take full advantage of something that is only profitable. REIT opens up a platform where even an investor holding small amount 2 lakh rupees can think of investing in the properties. Money collected from investors will be injected in various commercial projects like offices, residential houses, hotels, shopping centers, warehouses and a lot more to generate income.
Investing in REIT can be looked as investing in gold bonds. Indians are willing to buy physical gold rather than in bonds, implying that one’s investment in property will provide a sense of satisfaction than was the case in paper bonds. Indian property market is now stabilized and a wise investor will be thinking of investing now and chilling later.
Hybrid Space.. Wise choice!
Since this is the start-up age, the real estate sector has also come up with new way to cater entrepreneurs to back them up with an office space. Number of co-working space has crossed 40 in 2017 (it was 30 in 2016) in NCR region. The average occupancy share of co-working space is approx… 70-75% and this will go up in the coming time. With hybrid spaces, start-ups not only get flexible working options, but also this offer desks at cheaper rentals in an office environment. There are entrepreneurs travelling across the country, a hybrid space is attractive to them too who stay in a particular city for a few months and then move to another city for more researching.
This is a must read for people who are planning to buy their homes. For years, NCR has been a market catering needs to all kinds of real estate options. Noida and Gurgaon have benefited the most with the launch of affordable housing projects. Purchase side also tells that out of the total unit sold in the NCR region, 50% was occupied with the sale of affordable houses in the first quarter of 2018.
While this segment is evolving at an attractive growth, change in consumer behavior has also been quoted. Due to genuine project launches, consumers now have fair and transparent options available in front of them. Not only more options are available, but these options are affordable options. Adding to this, RBI recently stretched its limit to raise a loan for housing from Rs.28 lakhs to 35 lakhs. They also raised carpet area from 120 sq. meter to 160 sq. meter (for MIG-I category) and from 150 sq. meter to 200 (for MIG-II category). With this decent step by Modi government, there are a lot of people who were able to get a house at a very affordable rate.
On buyers and investors:
Buyers previously had to pay taxes depending on the construction status of property (under construction or completed). Buyer was liable to pay VAT, service tax, stamp duty and registration charges if the property was under construction. Properties that were duly completed came were exempt from VAT and service tax. Also, rates of VAT, service tax and other charges varied from state to state.
The biggest present that GST gave was, it made tax simpler that applies to the overall purchase price. 12% will be charged as tax out of the property value (excluding stamp duty and registration charges). Buyers will be no more paying any kind of indirect taxes on the sale of ready to move in properties.
Earlier developers had to pay 15% tax on service like labor, architect fees, approval charges, legal charges along with customs duty, central excise duty, VAT, entry taxes and the list goes on, on construction material cost. This burden was eventually put on the end consumer.
But now the story is quite different and clear. Cement comes under the tax slab of 28% which is higher than the previous tax rate (23-24) but a lot of additional taxes were eliminated under GST. Reduced cost of logistics will be fruitful as well. This new tax rate will definitely help in better profit margins. Reduced tax is also expected to bring down the overall cost of project which finally eases the burden of buyers.
Competition gets tough
The picture still remains the same in areas like Noida and Vaishali metro station where most of the projects are hung in mid-way due to some delay from builder’s side. This made investors switch to different modes of investments. With the regulation of RERA and REIT, there is more tough competition as errand builders have been thrown out of the business with strict policies working against them. This ensure the existing builders and other parties to ensure roper trust and satisfaction to investors and buyers. As competition gets tough, one with a unique selling proposition, and ability to adapt new technology will surely have the upper hand and be referred by byers and investors above all.
These trends surely clears the picture of real estate market. For investors, it surely the blooming time to inject as many funds to enjoy long term returns and for buyers to procure a house that is affordable in a metro city, this dream has come true and also for entrepreneurs providing them with a flexible and affordable office space. Real estate sector might have face several difficulties during the implementation of policies, but as we move ahead of 2017, the smog of not investing and not buying is fading away. If this time doesn’t attracts you, I guess no other time will.