The Real Estate sector outlook for 2020

[vc_row][vc_column][vc_column_text]Rahul Grover,
CEO,
SECCPL.[/vc_column_text][vc_column_text]Any revival in growth needs active participation from the real estate sector. Moreover, shelter being one of the basic needs is a good indicator of the fundamentals of the economy. There are some underlying themes for the real estate sector which may play out in 2020 and will likely continue in the foreseeable future write Rahul Grover, CEO, SECCPL[/vc_column_text][vc_column_text]

The former RBI Governor had hit the nail on its head when he expressed that the real estate sector is in “deep trouble”. Somebody had to bell the cat and call out the truth for its worth rather than beating round the bush and who better than Raghuram Rajan. It has been a very difficult year for real estate. On one hand, credit dried up completely resulting in a number of bankruptcies and huge sufferings for end customers, on the other demand weren't sufficient to sell the completed projects.

Real estate sector is one of the most important sector contributing as much as 7-8% of GDP and amongst the biggest employment generators. Any revival in growth needs active participation from the real estate sector. Moreover, shelter being one of the basic needs is a good indicator of the fundamentals of the economy. There are some underlying themes for the real estate sector which may play out in 2020 and will likely continue in the foreseeable future:-

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Liquidity

There is every reason to believe that we have already sailed through the worst of a liquidity crisis. Post IL&FS crisis, credit abruptly stopped as the NBFC sector collapsed leaving a huge vacuum in the lending activity. While the demand/supply dynamics will change only slowly, a series of government measures may actually instil confidence in the sector and pump liquidity to the industry. Cuts in corporate tax, as well as series of repo rate cuts, have already pumped 2 trillion liquidity into the market. The excess liquidity hasn't yet played out with most banks hesitant to lend. Banks starting to lend to developers as well as end-customers, the upcoming year promises to be better than 2019.

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Technological transformations

Technology has played a pivotal role in the growth of economy and real estate sector has not been an exception. Not just in terms of construction, digitalization of land records and property in many states has led to an increased level of transparency and reduced frauds. While on one hand, construction quality standards have increased, technology like augmented virtual reality has picked up pace where buyers can experience a property without physically being present. With increased corporatization of this largely unorganized sector, a customer expectation in terms of client service has greatly increased in tandem with increased competition. 2020 promises to be much more exciting with advanced technologies like AI & Machine learning increasingly getting prevalent in the industry.

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Foreign investments

The interest of foreign investors in the Indian commercial real estate space has never been in question. Foreign investors have been on the lookout for the office location in major cities and the recent downturn hasn't yet played spoiler. The response to REITs and increasing inflow even with low sales in the local market points to steady confidence in the sector by foreign investors. The increasing investment from foreign players bodes well for the industry even while economic activity back home touches rock bottom.

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Consolidation of market

The numbers of real estate players going towards filing bankruptcies have seen a steep increase roughly doubling in a year. A number of small players are going under the bus and the unorganized sector is in trouble. While the big players are hanging in there, debt is something which real estate sector is not comfortable with anymore. The days of mindless leveraging and building as many flats as possible overreaching financial ability and diverting funds from project to another project are all over. RERA has brought in much-needed discipline and works in the interest of the market.

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Legislation

The next big thing after RERA is the Model Tenancy Act which is in the offing for quite some time. The draft bill is already ready and will be hopefully passed in 2020. It is well known that India is set to witness urbanization and migration for livelihood at a scale never happened before. It is inevitable that government catch up and make laws which will make the transition smoother as professionals switch jobs and take PAN-India positions frequently. The legal framework aimed at encouraging institutional investments in rental housing to bring out the potential in an under-tapped market. India will see real estate renting consultancy on a large scale as institutional investors move in to fill the void. A fresh legal framework, standardization of tenancy rules, deposit requirements among others will go a long way for the industry.

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