Government policies, digital adaptation and vaccination drive have stimulated growth in the real estate sector.

- Abhinav Kanchan

Senior Vice President, SOBHA

Real estate sector is one of the key contributors to the GDP of the country. But it has been going through rough seas since the last few years. Can you give us an overview of the sector (across asset class)?

The pandemic and the resultant nationwide lockdowns impacted businesses across sectors and the real estate sector was no different. However, the Indian real estate sector recovered faster than other countries in the world. During the lockdown, sales of established brands were less affected, owing to the technological tools used and digital strategies like VR, AR and IoT etc. These technologies helped increase opportunities during the lockdown period. Additionally, during the second wave, cities like Delhi-NCR, Mumbai, Bengaluru, Chennai and Hyderabad saw increased number of online property searches (as per Housing.com) Also, recent trends such as the creation of a new breed of millennial investors and the availability of bigger homes in peripheral areas at affordable prices have helped the sector's quick revival from the pandemic's effects. A recent report by Anarock also suggests that due to higher demand in affordable and luxurious housing, almost 58% of homes launched in 2020-21 are in peripheral areas.

The residential sales in Q2 (April-June) 2021 (report released by JLL) also depicted that sales have increased by 83 percent as compared to Q2 2020, across the top seven cities and this proves how well the sector has fared in comparison to the previous years.

Traditionally, real estate market has been driven by investors. But today we see it as an end user market. Has the transition benefitted the industry? What is the reason for investors shying away from the sector? Do you expect PE/VCs to return to the sector or will it witness further consolidation?

The real estate sector is driven by end-users today. It is needless to say that customers have helped the sector grow and innovate over the years. The lockdowns due to the pandemic have set a new trend in the age profile of the real estate investors as there has been an increase in millennial homeowners recently. To meet the demand of younger customers, developers are also using technology, latest innovations and ideas like project construction using 3D mapping, use of drones and modular construction, among many other new aspects. These methods will not only help meet the consumer demands but also enhance the quality of construction which would lead to faster completion of projects with better standards. These adaptations to address end-user demand will bring customer satisfaction and make the real estate sector future-ready to address operational glitches. 

The implementation of government policies like GST and RERA has bought more transparency to the sector as credible players can deliver quality projects on time as per consumer's satisfaction while strengthening customer's belief in the real estate sector as the most investible asset.

Given the progress that the sector has made recently even amid the pandemic and the support from the government in terms of policy reforms and the massive vaccination drive initiated in the country, we expect that the sector will touch pre-Covid levels sooner than other sectors and are hopeful to go back to normalcy at the earliest.

The government has announced various schemes to boost the real estate sector, especially the residential segment with "affordability" being the focus. How far have the benefits of these schemes actually translated into giving a boost to the sector?

Residential projects in the affordable segment have seen traction during the pandemic period among millennials and professionals. The recent work from home culture has prompted youngsters and new home buyers to invest in suburbs than in city centers. Suburbs offer bigger homes with luxurious amenities, green spaces, and seamless access to facilities like hospitals, supermarkets, schools etc. All these facilities are offered at a reasonable rate which has resulted in attracting the young Indian homebuyers. According to a survey by Nobroker, 82% of respondents have shown an interest in buying property in 2021 compared to the 64% in the previous year. These statistics are testament to the increased interest for investing in real estate.

The investment of government funds in the infrastructure sector for the development of connectivity will further increase demand for affordable housing in the future. Additionally, the establishment and debt financing of REIT and InvITs will help improve the real estate sector in the coming years. 

Tell us about the challenges faced by the developers currently (delay in approvals, higher premiums and pandemic effects). Also, according to you, what measures need to be taken to iron out the challenges?

At present, the country is going through a structural transformation but the demand for housing will continue to rise as Work-From-Home and safety issues remain important aspects for the next few years. The interest from millennials for investing in properties in peripheral areas at an affordable price with better facilities has been able to generate a positive wave in the sector. To further strengthen the sector, certain steps like rationalization of the GST rates (by allowing the input tax credit), access to funds having longer repayment cycles, lowering of tax on raw materials, and increasing the tax rebates on housing loan interest to at least Rs. 5 Lakhs should be looked into by the government. The real estate industry has also taken steps to support construction workers with facilities like food, medication, safety and proper sanitation on sites. This has ensured the safety and well-being of workers which has further resulted in uninterrupted continuation of business which will benefit both the real estate sector and its workers.

At SOBHA, we have robust processes in place and a track record of delivering quality projects on time due to our self-reliant business. Our divisions of Concrete Products, Glazing and Metal works and Interiors have helped us overcome the difficult times successfully to continue business as usual.

The RBI has also taken a proactive stance to ensure liquidity into the system and slashed repo rates. But the banks are not transferring the benefits to the developers. Kindly share your views on the same and what needs to be done to streamline the processes?

The unchanged policy rates by RBI and low interest rates will boost the real estate sector and increase demand. The decision by RBI to retain the repo rate at 4% is a supportive decision that will help the sector revive faster and help the economy by contributing to the GDP. Banks play a crucial role in the property investment of a customer. It is essential that there is seamless processing on the financial side of property investment. With repeated stability at the repo rate, added with more liquidity, we hope that banks will be able to transfer the benefits announced by the RBI.   

How do you assess the growth prospects of the sector especially in the southern region of the country as against the development in north, west and east?

The south Indian real estate market is one of the strong pillars of the real estate sector in terms of sales and investment. Southern markets like Bangalore and Chennai offer properties at lower prices compared to other markets like Mumbai, Delhi, or Pune. On an average, the number of unsold units that include under construction projects seen to be more than in the southern markets. A recent report (by ANAROCK) indicates that the approximate value of stalled projects in Bangalore and Hyderabad together is Rs. 5,788 crore while Mumbai and NCR combined amasses a total of Rs. 3 lakh crore.

Also, southern markets are a hotspot for NRIs for the bigger projects available at affordable prices. Further, it is important to note that cities in southern markets are depicting a faster rate of development with better connectivity and facilities. In FY 21, NRIs invested USD 13.3 billion in the Indian real estate sector, compared to USD 13.1 billion in the previous year. Basis a report, this trend will see a further surge as NRI investment is likely to rise to USD 14.9 billion in FY22.

Can you give us an outlook of the sector and your plans by 2025?

The sector has shown major signs of revival and is on the right path to be valued at pre-pandemic levels. The policies from the government, digital adaptation and vaccination drive have stimulated growth in the sector. With the recent trend of millennial investments rising and as the work from home and e-learning is here to stay, the sector anticipates more traction in the future. The upcoming festive season and the attractive discounts from builders will add to the existing demand. Looking at it holistically, a silent confidence is settling amongst people. With all the collective measures taken earnestly, the sector is hopeful for a brighter future for the industry.

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