REAL ESTATE: POISED FOR A LEAP

Real estate in India has been impacted by the Tsunamis of reforms resulting in a slow-down in the past few years. The second highest employment generator after the agriculture sector, the real estate sector has shown resilience even in the most difficult times.

The economy got bruised by the Covid-19 pandemic followed by the lockdowns both during the first wave in 2020 and the second wave in the first half of 2021. However since June 2021, the sector has picked up pace and all its segments are performing better.

On the demand side, the residential segment has witnessed a tremendous change in the last two years, as people are preferring larger spaces given the culture of Work From Home being the new normal. The commercial segment is also witnessing a renewed  interest from the investors who are vying for safer investment options with handsome rate of interest.

In this 'new normal' world where mankind has learnt to co-exist with Corona, the RE industry has continued to be the biggest drivers of the economic growth. A recent report by the IBEF states that the sector will make up 13% of the GDP by 2025. This is largely on the back of the initiatives announced by the government to give a boost to the crisis-struck sector.

According to IBEF, some of the bold decisions taken by the governments, both at the Central and state levels include:

• Tax deduction up to Rs 1.5 lakh on interest on housing loan, and tax holiday for affordable housing projects have been extended until the end of fiscal 2021-22.
• The Atmanirbhar Bharat 3.0 package announced by Finance Minister Nirmala Sitharaman in November 2020 included income tax relief measures for real estate developers and homebuyers for primary purchase/sale of residential units of value up to Rs 2 crore from November 12, 2020 to June 30, 2021.
• In October 2020, the Ministry of Housing and Urban Affairs (MoHUA) launched an affordable rental housing complex portal.
• On October 27, 2020, the government announced the application of Real Estate (Regulation & Development) Act, 2016 in the union territory of Jammu & Kashmir. This has paved the way for any Indian citizen to buy non-agricultural land and property, as opposed to the eligibility of only local residents earlier.
• In order to revive around 1,600 stalled housing projects across top cities in the country, the Union Cabinet has approved the setting up of Rs 25,000 crore alternative investment fund (AIF).
• Government has created an Affordable Housing Fund (AHF) in the National Housing Bank (NHB) with an initial corpus of Rs 10,000 crore using priority sector lending short fall of banks/financial institutions for micro financing of the HFCs.
• As of January 31, 2021, India formally approved 425 SEZs, of which 265 were already operational. Most special economic zones (SEZs) are in the IT/ BPM sector.

Low interest rates, reduction in stamp duty rates and the requirement of work-from-home culture resulted in the growth in the residential segment.

A range of factors contributed to the sector's impressive performance, from customer sentiment, digitised operations to a conducive market environment. Homes have emerged as primary sanctuaries of safety. The value of homeownership rose like never before as this multifunctional space - for work and leisure became the most secure place to be during such times of calamity.

Traditionally the real estate market has been driven by investors. But today the Indian residential market has transitioned to the end-user market. As per Anarock's consumer sentiment survey, nearly 74 per cent respondents looking to buy a property are doing it for self-use while the remaining 26 per cent is looking at it from the investment perspective.

"In comparison, during the lockdown period, the share of investors was higher at 41 per cent. The major factor driving the change (buying for self-use) is affordability which has reached its lowest best across all the major cities. Offers and discounts doled out by developers coupled with lowest best home loan rates are also the other contributors," said Anuj Puri, Chairman and Founder of ANAROCK Property Consultants.

Policy Reforms

Indian real estate is now better structured, more transparent, thanks to the policy decisions and initiatives which have been implemented over the past few years. Most importantly, it now has a mechanism to deal with disputes which may arise between home buyers and sellers. This has played a major role in assimilating global best practices and bringing in a corporate way of working in the Indian real estate sector. Industry bodies such as NAREDCO have followed the policy decisions with initiatives which are in sync with the same, and these efforts have played a role in enhancing how the industry functions.

"Our efforts have brought about standardization in work, enhanced quality consciousness, ensured creation of a better product with retraining and upskilling being the watchwords for better human resources that power the industry," said Dr. Niranjan Hiranandani, National President, NAREDCO.

One of the pressing challenges faced by the builders is the continual spike in prices of raw material which has a direct and significant impact on the overall project cost. Also the availability of skilled labour and delay in approvals also affect the timely completion of projects within the stipulated costs.

"We consistently work to shield our customers from any price hikes. Our cross-functional teams constantly identify agencies to optimise the use of raw materials and mitigate costs wherever possible. We adhere to the existing regulatory framework to minimise delays in procurement of approvals. Through PropTech and ConTech, we optimise the use of skilled labour and reduce construction timelines," said Abhishek Kapoor, CEO, Purvankara.

Speaking about the positive impact of RERA on the sector, D Radhakrishna, Chairman Appellant Tribunal of Tripura Real Estate Regulatory said, "RERA is for overall improvement of the real sector which includes Developers, Promoters including facilitators and the buyers. If we consider or address problems of only buyers then it may reflect negatively on overall growth of the real estate sector. We have to consider the problems of developers also which is mainly related to complicate planning and development bylaws and delay in permissions. The delay in completion of projects causes problems for all which should be looked into."

Affordable Housing

Residential projects in the affordable segment have seen traction during the pandemic among millennials and professionals.

According to a survey by NoBroker, nearly 82% people have shown an interest in buying property in 2021 as against 64% in the previous year. The statistics is 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. Also the establishment and debt financing of REIT and InvITs will help improve the real estate sector in the coming years," said Abhinav Kanchan, Senior Vice-President, SOBHA.

'SWAMIH' fund - relief to the ailing sector

The government had announced Rs 25,000 crore bailout fund for the stalled projects in November 2019, which was only a small part of the Rs 4,64,300 crore in unfinished realty projects in seven major cities. It must be noted that the real estate market has been facing headwinds due to demonetisation of 2017 and later by the IL&FS issue of 2018. This had devastated the NBFCs and caused a liquidity bottleneck. "Coupled with the current pandemic situation since 2020, the number of stalled projects is huge and hence a faster mechanism has to be devised to ensure that buyers get their homes at the earliest," said Kushagr Ansal, President, CREDAI (Haryana) and Director, Ansal Housing.

Investment Scenario in RE

After the NBFC crisis, the nationalised banks began funding ensuring that the building project does not get stuck. "The last two to three years had been very critical for the real estate sector but banks have proactively supported the developers and the real estate fraternity by being flexible. This helped the banks in getting better returns. Also banks are ensuring that the developers adhere to the RERA rules and concentrate on production," said Vineet Goyal, Joint Managing Director of Kohinoor Group.

Explaining further, Amit Goenka, MD & CEO, Nisus Finance said private equity funds are likely to make a comeback. "Unlike earlier, FY2021 saw private equity investors focus majorly on portfolio deals across multiple cities and assets, rather on specific projects or cities. Such portfolio deals constituted 73% of the overall share. Though FY21 was an unprecedented year due to the pandemic, foreign PE funds showed much optimism for India. As much as 93% of the total PE investments pumped into Indian real estate was by foreign investors. Foreign funds are evidently very upbeat about India. High-grade rental-generating assets have attracted foreign investors in a big way during the year."

Apart from this, there is a renewed interest of investors in the REITs, he added.

Changing Trends in Commercial RE

The markets post pandemic are almost 'turning turtle' after the four quarters of relative global uncertainty. The pandemic has controlled new supply as liquidity has crunched and not much concrete is being poured for new office buildings thus making the coming years interesting - once demand gets backed by more people getting jabbed and coming back to work, there will be commercial space shortage resulting in increased rents on properties.

"Serious and large occupiers have realised this trend and hence are planning purchases of spaces to ensure they do not miss the supply cycle," said Juggy Marwaha, Chief Executive Officer, Prestige Office Ventures.

With the vaccination drive gaining momentum, corporates have fine-tuned their hybrid working models and hence the demand for office is expected to expand. In the first half of 2021, PE investment inflows into the Indian real estate sector stood at USD 2.7 billion. During this time, India also witnessed one of the largest deals in the warehousing sector when Blackstone Real Estate announced that it acquired Embassy Industrial Parks from Warburg Pincus Inc and Embassy Group for an enterprise value of USD 700 million.

"It is expected that the commercial real estate sector will bounce back and investors may get returns to the tune of 9-12% in the coming quarter. With the first half of 2021 witnessing some marquee deals by both foreign and domestic investors in the commercial office segment, the outlook seems bullish for the second half as well," said Vineet Dungarwal, Director, AMs Project Consultants.

Changing Architecture of RE

When compared to the international market, the processes in India are comparatively behind yet not age old. There is a gradual pick-up of smart solutions and tech-driven options seen in the interior design and architecture design industries, observed Sumit Dhawan, Founder & Principal Architect CitySpace ‘82 Architects.

"For instance, there is the use of modular construction, which has been prefabricated. Kitchens, wardrobes, and bedrooms are being manufactured, and just like Lego blocks, they fit into the right spaces on-site," he added.

Way Forward

The residential real estate is poised to grow significantly with the government aiming to build 20 million affordable homes. Thanks to initiatives taken by the government, Indian real estate is expected to attract a substantial amount of FDI in the next 2 years with USD 8 billion capital infusion by FY22.

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