Increase in Global Capital Flow
India is ranked fourth in developing Asia for FDI inflows as per the World Investment Report by the United Nations Conference for Trade and Development. Indian Real estate has attracted $32 billion in private equity. The global capital flow into Indian real estate stood at $5.7 billion in 2016. Despite Brexit and uncertainty around the new US president’s outsourcing and visa related policies, private equity looks healthy in 2017 owing to strengthening and modernising economy and the growing reputation of India as an attractive investment destination. The changes in the regulatory framework have made India more appealing to both global and Indian investors. Increased transparency and launch of REITs will further whet their appetites for getting a piece of the Indian real estate pie.
Revamping of Business Model by Developers
The implementation of RERA will enforce unprecedented accountability and transparency and do a lot to increase consumer confidence. The Goods and Services Tax (GST) and the Benami Property Act will also have a major impact on how many developers run their businesses. Demonetisation shook up the older ways of working, but did not affect self-governing developers with the right products targeted at the working masses. The rest have realised it is time now to revamp their existing business models if they want to remain in business at all. Residential demand is expected to pick up towards the end of 2017 – but the recovery will be sustainable and based on much sounder market fundamentals than transient sentiment. The commercial office space sector will get a strong shot in the arm with REITs. Real Estate Investment Trusts will have an important and long-term impact on developers and present them with the choice of either ‘corporatizing’ or risking take-over by their bigger and better-organised counterparts. The pressure from funding agencies will simply be too strong to ignore.
Co-Working Spaces: The shift towards hybrid spaces
Co-working spaces are coming up in India and in a large way not only in metros but also in Tier II cities as well. This framework will provide start-ups with flexible working options at affordable rents. Despite having more than 100 operators in this space across the country, the supply is still very limited in supply. The segment is surely but slowly booming across India considering the many advantages this model offers:
Co-working operators and corporates will move into a ‘hybrid’ sort of space and increasingly rely on each other.
Sun rising on Affordable Housing
Affordable Housing in India has been given infrastructure status. A number of initiatives have been taken to make this a reality. A subsidised interest rate of 4% has been facilitated on housing loans up to INR 9 lakh and rebate stands at 3% on loans up to INR 12 lakh. Infrastructure status has been granted to affordable housing. The developers can avail more economical sources of funding, including external commercial borrowings. Developers will also get a year’s time to pay tax on notional rental income on completed but unsold projects. The tenure for long term capital gains has been reduced to two years from the current three years. The promoters will get an extended time period of up to five years as against the earlier three years for completion of projects. The government’s dream of Housing for All by 2022 appears a lot more attainable now.
More Industry Consolidation
The only possible solution for slowing sales and lack of financial prudence among several developers is consolidation. The overcrowded real estate sector is moving towards becoming leaner and meaner and through joint developments and joint ventures between landowners and small developers with bigger players buying out smaller developers and struggling developers cashing their land banks by selling them to players with stronger balance sheets and appetite for growth.
Some investors and developers will take plunge into the market now, while others will prefer to ride the fence for a while; but one way or the other, consolidation will be the name of the game for the Indian real estate industry over the next five years. Larger players will peak in strength by around 2021, and smaller players will be eroded. Equity investment – or the lack of it – will play a deciding role.
See Also: ANP Holding
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