31/12/2017
PUNE: The
aftermath of demonetisation and implementation of Real Estate (Regulation and
Development) Act or Rera and goods and services tax (GST) turned 2017 into one
of the worst years for developers and a mixed bag for homebuyers.
While demonetisation, announced in late 2016, hit the sale of
luxury apartments, unorganised players and NCR in particular, where the cash
component was high, Rera and GST have increased the cost of business for
developers. Developers had to increase compliance under Rera. Presales, which
were their primary source of funding for initial stages of construction, were
banned and they have to keep 70 per cent of project proceeds in an escrow
account.
“If anything, 2017 will go down in history as one of the most
difficult years for residential developers, who faced several challenges
ranging from realigning their businesses to comply with the GST roll-out to
changing business models in the wake of Rera - and then, post-demonetisation,
investors disappearing from the market. Though demand in end user-driven markets
was not affected as much, the more speculative markets saw buying activity
reducing to a trickle - more so in the luxury segment," said Ramesh Nair,
CEO at JLL India. But the changes have fast-tracked the consolidation and is
being reflected in the sales and financial highlights of reputable developers
with every passing quarter, says Amit Bhagat, chief executive at ASK Property
Investment Advisors.
"Rera was finally implemented with clear guidelines for
compliance and financial management to ensure funds are utilised for timely
completion of the project with delivery matching the committed project/product
specifications. This was the strength of the reputable developers who were
customer-centric and financially disciplined,” Bhagat said.
Developers agree. “Rera will hasten the consolidation but it
will be an opportunity for what we have been doing, to do it with better scale
and efficiency,” said Pirojsha Godrej, chairman at Godrej Properties, in a
recent interview, Bhagat said the residential sector would see further
consolidation and winners would be customer-centric players with in-house
execution abilities and differentiators of facility management.
"The ability to source better land parcels and the
ability to get rid of past baggage will also be differentiators. Reputable
large corporate houses will increase their focus in this sector due to
regulation, governance and transparent practices," he said. Projects
focussed on upper mid- and luxury segments were adversely impacted since the
additional impact of GST cannot be absorbed due to increase in supply,
affordability and lack of interest from investors and users.
JLL's Nair said the GST applicable to the purchase of homes in
under-construction projects caused buyers to either buy into completed projects
or hold onto their purchase decisions. "Also, developers halted sales in
projects not registered under Rera across major cities. These combined factors
led a quarterly sales decline in five of the top seven cities to an all-time
low of 4.8 per cent in 3Q17. This led to developers offering higher discounts
to genuine buyers," Nair said.
According to JLL, in 2017, capital values in cities such as
Pune, Kolkata and Hyderabad grew at a comparatively faster rate, thanks to
their lower price base compared to the tier-I cities. New launches were slower in
2017, and are likely to remain so as developers assess market sentiment in
post-Rera. Prices are expected to remain stable in 2018, too.
Ajay Jain, joint MD of Sun Capital Advisory, believes
residential sales will take another 18 to 24 months to improve. "During
this period, we expect a lot of consolidation and slowdown in new
launches."
Despite the government giving various sops to affordable
housing such as infrastructure status, it did not give a big boost such
projects. Barring Shapoorji Pallonji, Mahindra Lifespaces, Godrej Properties,
Puravankara and some others, not many announced or launched projects.
According to JLL, vacancy levels remained largely unchanged
through 2017, hovering at around 14 per cent pan-India. Select markets saw
lower vacancy levels and are expected to see a further decline in 2018. Overall
vacancy levels will likely hover around 15 per cent during 2018. "Very low
vacancy rate and continued demand in the prominent office corridors of
Bengaluru, Gurugram, Hyderabad and Pune will help better rental appreciation in
2018," Nair said.
Reits or real estate investment trusts, which did not take off
in 2017, is expected to be a game changer in 2018, providing exit for investors
and developers and giving a new instrument for small investors.
New retail space of 6.4 million square feet got completed in
2017 - making this year the second-best after 2011 in terms of net absorption,
JLL said. Shopping mall stock is projected to grow strongly in the next
three-four years in seven cities, as around 20 million square feet of supply is
expected to come up by the end of 2019. Of this, around 11 million square feet
of supply is expected in 2018 if completion delays are not accounted for, JLL
said.