While 2017 was considered to be a year of consolidation, 2018 could be a year of chaos. The regulatory changes of 2017 have left numerous developers confused over streamlining of processes. Buyers are confused because all the reports of transparency in the sector have not yet become visible on the ground. In the meantime, property buying and selling (real estate) are likely to remain at a pause, given that the job market isn’t picking in any given industry.
2017 has been a real year, despite the short-term chaos. It is imperative to have a broader outlook of three to five years, to see significant outcomes of the critical measures implemented in 2017, which will help businesses, investors and consumers to continue investing in India’s growth story. Policies like RERA, REIT, and GST, will boost buyers’ confidence towards real estate.
Major Trends in 2018
- Rebuilding the Business Model: Developers realised that there is a need to adjust the business model. Buyers are quite aware of their rights due to various initiatives from the government. The focus will be on concerns of the buyers and not just the products. Developers would ensure that the service they provide is valuable and more realistic. Priority would be given to the buyers & their satisfaction.
- More Capital Flow from FDI: In 2016, Foreign Direct Investment in India’s Real Estate Sector was 34 Billion US Dollars. In a report by the UN Conference for trade & development, India ranked 4th for FDI inflows. India has been a significant destination for global & Indian investors due to the regulatory enhancement. The clarity in the Real Estate has gained assurance from the NRIs as well. It is expected that more funds inflow will continue in 2018.
- Affordable Housing: The market will see comparisons between luxury & affordable housing as to which one is better. Due to initiatives by the govt like the Pradhan MantriAwasYojana for affordable housing, various private companies have started showing interest in affordable housing. However not every mass housing scheme will work, particularly the ones that offer bare-shell units.
- Research-Based Developments: The developers are likely to concentrate on serious research and then kick-off any project. The property will only be sold when the time is right, and the right market exists, substantial research will be required for launching new projects. Affordable housing in Tier 1 or luxury housing in Tier 2 can only be sold if the developers are fully aware of the buyers and their purchasing power.
- Development of Smaller Projects: The significance of small projects will rise from 2018. To escape penalties by RERA and to provide housing on time, smaller projects would be a priority for developers now. The developers would avoid inventory overhang.
- Focus on Execution: 2018 – The year of execution. With a large number of projects running behind schedule, the year could see a good supply of homes, across the major markets of India. Developers will prefer to deliver existing projects first, rather than going for new launches. Landbank has already turned out to be an obligation for many, and hence developers will be reluctant to invest in a pipeline of 10-20 years.
- The growth of Tier-2 Cities: Increasing traffic congestion in cities may reduce employees’ productivity time. Along with the higher compensation paid to the migrant workforce in the metro cities, is apparent to force companies to estimate their cost of doing business per sq. Ft. & consider the prospects of operating out of tier-2 towns. The demand would thus, force the developers of commercial projects towards tier-2 cities.
- Increase in Hybrid Spacing: A lot of start-ups in India have started providing spacing for co-working. This co-working culture renders office spaces at affordable rates. It is growing at a very high speed in metro cities and will continue to grow in 2018. Many companies will enter into this business, hence giving rise to hybrid spacing.
- Consolidations and Joint Ventures: Consolidations and joint ventures will rise in 2018. The government reforms brought hysteria to the Real Estate industry & hence the affected would want to improve their statuses. Petite developers who are on the verge of the slump will join hands with the giants of the industry to boost their development.
- Ease in Office Sector: Real Estate Investment Trust (REIT) will let the builders get funds quickly. The office sector gets funding from private equity funds. It will attract investors who do not want to risk everything. They would invest in something which is reliable and gives returns.
While many of these changes may not be very comforting for the developers, those who are likely to succeed will be the ones who embrace the changing market dynamics. Real Estate was in total confusion with these reforms in such a short term. There have been short-term losses, but there is a possibility of long-term gains. Overall 2018 is likely to bring satisfaction to developers as well as buyers.
See Also: How does land banking work in India’s real estate market?