The new year would be a decisive one for the country due to the upcoming general elections as despite numerous continuities some variations may be expected at the policy level in various sectors, including real estate. Despite the many challenges that the Indian economy faces, the efforts of the present government should be lauded for the simple reason that it has put in place significant reforms to bring in more transparency, increase accountability and brought about significant restructuring in the real estate industry s behaviour. The year 2018 would also be known for robust real estate investments, clearly reflected in the smooth flow of capital.
The strict implementation of Real Estate (Regulation and Development Act), 2016, popularly known as RERA regime by the government would go down in the history as one the most important reforms in the housing and real estate sector that has made developers accountable to the public and increased transparency in their conduct. The stability of the cost of land post-demonetization has had a positive impact on the overall sector behaviour. Though it has led to poor sentiments in the residential sector, housing has been made more affordable and transparent for the common people. The slowdown might be blamed on the restructuring brought in by the RERA regime, but this reform was long overdue. It could be said that worst may be behind with a more modest and sustained recovery in the coming years.
The heterogeneity of the real estate sector puts it altogether on a different pedestal as it consists of diverse asset classes like Office, Retail, Residential, Industrial and Hotels. The common thread that binds these asset classes is Land which is fundamental to all classes of the real estate industry. Availability of affordable land could be termed as one of the few panaceas of demonetization.
Modern retail has been one of the most fascinating sectors of the real estate industry. The traditional shops and businesses are being gradually replaced by swanky modern marts even in small towns.
2018 would also be remembered for the office sector as several key cities recorded high rent quotients and lowest levels of vacancies. On the other hand office stock availability varies significantly such as Grade A office stock in Bangalore is at 3.5%, Delhi NCR at 29% and Mumbai at 17%. The variation could be explained by the availability, choice, location and quality of buildings.
GST regulation and simplification of the tax regime has hugely benefitted the industrial and warehousing sector. It has led to faster movement of goods and warehouse consolidation.
The real estate investments too have gone up with smart initiatives by the investors. It has demonstrated a compound annual growth rate (CAGR) of 40% over the last five years. Residential sector (36%) and offices (31%) and hotels (12%) continued to receive larger investments.
With approximately six months to go for the big elections, the economy as a result of these initiatives appears to be in a pretty good shape, and the new government, which is likely to take office in the middle of the new-year, will inherit stability across all asset classes.
(By Anurag Mathur, CEO, Savills India)