Mumbai: This year did not start well for the real estate sector. Demand was low, inventory was high, funds and inputs were expensive, and political instability with regards to general elections topped the list of worries. Home buyers and investors were facing project delays, high property prices, inflation and sticky borrowing costs. Now, by the end of the year, some things have changed, some haven’t.
“The return of political stability and the introduction of much needed policy reforms, and incentives to developers and homebuyers was good news,” said Anuj Puri, chairman and country head, JLL India. In the budget, deduction limits under section 80C and section 24 were raised by `50,000 each, which meant that borrowers can get more tax benefit on what they pay towards principal and interest on a home loan (for a self-occupied house). “This will help increase savings in the hands of homebuyers,” said J.C. Sharma, vice-chairman and managing director, Sobha Ltd.
But selling a house has become tougher as the exemption on capital gains tax is now available only if the gains are used to buy a single residential house (earlier you could invest in more than one). Also, exemption from long-term capital gains by investment in specified bonds (section 54EC) is capped at `50 lakh, even if invested across more than one financial year.
At a larger scale, the government plans to develop 100 smart cities across the country, and has allotted `7,060 crore to this end. It has also set a target to provide housing for all by 2022, and has allocated funds for development of low-cost housing (`4,000 crore). Manoj Gaur, managing director, Gaursons India Ltd, said; “We expect the government to ease the load on developers by coming out with legislations around developing affordable houses.”
Real estate got another boost when real estate investment trusts (REITs) were granted a pass-through status for taxation (only unitholders will pay taxes on income earned and not the Trust). The recent relaxation in exit norms for foreign direct investment in the construction sector—no three-year lock-in—has improved sentiment.
The various measures, most of which were announced in the budget, have done a fair bit to raise confidence levels of stakeholders in the real estate market. But substantial increase in transactions is yet to happen. Homebuyers are still cautious because of high property prices and borrowing costs.
“While sentiment can improve almost overnight, actual changes takes time,” said Puri. Overall sales remain subdued, thus affecting new projects.
According to data from PropEquity Analytics Pvt Ltd., in 2014, new launches of residential units declined almost 48% in seven major cities (National Capital Region, or NCR, Mumbai Metropolitan Region, or MMR, Bengaluru, Chennai, Hyderabad, Kolkata and Pune) between January and October. A total of 2,839 projects were launched between January and October 2013 versus just 1,471 projects during the same period this year. Worst off were MMR and Hyderabad, where launches fell 63% each. In MMR, this year 312 projects were launched compared with 837 in 2013. In Hyderabad, it fell to 92 from 252. Kolkata fared the best—new launches reduced by only 17%.
Apart from this, decrease in overall sales was also a cause of concern. They reduced by as much as 28%. Only about 210,170 residential units were sold in the seven metro cities during the January-October 2014 period, compared to 293,371 during the same period in 2013.
The pricing nail
Poor sales and increasing inventory levels did put a check on property prices, especially of newly launched projects, whose prices are more in line with the demand. Samir Jasuja, founder and managing director, PropEquity, said, “Prices either remained stable or fell by 5-15% across real estate sectors in India.” However, considering project delays, most homebuyers preferred to buy ready-for-possession properties.
No sharp increase in price is expected in the near future as speculators and investors, who have been riding the property market for a long time, are almost out of the market. Residential property prices will either stabilize, or if borrowing cost comes down, as many are expecting, it might appreciate marginally in 2015.
One trend in real estate that gathered strength in 2014 and is likely to continue its fast pace next year as well is of the spread of realty portals.
Though offline activity was subdued, online was a different story. New realty portals brought with them innovative technology and services to establish themselves and enhance market share. Some of these services include 3D and virtual property views, map-based property search, new projects offerings, and so on. One could safely say that this was the only segment in real estate to witness investor confidence and fund inflows. According to mergers and acquisitions tracking website, Dealcurry.com, Housing.com sold 30% stake for $70 million, IndiaHomes.com raised $50 million (`310 crore) from its existing investors, Commonfloor.com secured $7.5 million from existing investors, and Grabhouse.com raised $2 million.
What lies ahead?
Recent indications of revival in the economy, and positive investor sentiment are expected to bring some cheer to the supply side stakeholders in real estate. Apart from that, in the most recent monetary policy review, in December, the Reserve Bank of India indicated a possibility of rate cut early next year. With inflation cooling off, and the likelihood of the central bank cutting rates, borrowing cost for homebuyers may come down. “Reduction in borrowing cost on home loans will definitely induce fresh momentum in residential sales, especially in the affordable and mid-income housing segments,” said Puri.
Affordable housing is expected to be the flavour of the season, with the central government clearly spelling out their intention in this regard, though state governments have to come on board.
Developers, homebuyers and investors are all hoping that the next year will turn events in their favour.