2016 saw the biggest changes in decades especially on the policy front for the real estate industry. GST and RERA being some of the game changing policies, cleared hurdles and are on their way to implementation. Demonetization move has caused considerable distress in the real estate sector, however along with the Benami Transactions Act, it promises to bring much more clarity for this sector.
Real Estate investment Trusts (REITs) promises to open up the real estate market to smaller investors in this year along with keeping a sharper focus on affordable housing. India’s real estate markets are definitely positioned for growth in the medium-to-long term on the back of higher accuracy and further solidification. The country’s Tier-I cities moved up to the 36th rank in JLL’s biannual Global Real Estate Transparency Index in 2016 due to development in structural reforms and liberalization of the FDI policy. As per the World Investment Report 2016 by the United Nations Conference for Trade and Development , India stand in the 4th position in developing Asia in terms of FDI inflows. The country is ready to become a modern economy, thanks to a proactive government eager on developing India’s ranking on various indices and strengthening public institutions.
- Policy Framework:
- Demonetization: This move virtually dried up the transactions in the real estate, especially in the land and capital raising business. The Residential sales enquiries have also witnessed a drop and prices in the secondary market are lessening.
- Real Estate (Regulation and Development) Bill: This was passed by the Parliament in March 2016. All the union territories along with two states i.e. UP and Gujarat, have implemented RERA, however Chandigarh has set up an interim regulator while various other states are on their way of setting up their respective regulatory bodies. The deadline provided for the implementation was one year from the time the bill was passed. This effective pro-consumer law will bring in transparency to the real estate sector like never before.
- Benami Transaction Act: This act will refrain black money flow into real estate and also provide holding of property under fake names a punishable offence. Budget 2015-16 also announced a heavy penalty on property transaction carried out in cash. With this amendment it will be impossible to put away the incidences of unaccounted money in the real estate sector.
- Good and Services Tax (GST): Allowing input credit along with a clarity on tax credit for real estate transaction could bring about a reduction in home prices. Since the process is moved online, it takes less time for the developers to get central level approvals. The Model Tenancy Act, which was rationalized by the Centre, will be followed by all the states. Click here to read about How to earn trust and respect from real estate clients.
- Residential Real Estate: A trend that emerged last year was that a higher number of units were sold every quarter than new project launches within the same period, this slowing of new launches helped reduce the inventory overhang. Demonetization resulted in a drastically different reading in the fourth quarter as the old currency notes were no longer valid and thus home buyers/investors using unaccounted wealth to carry out transactions faced a tough time, with the developers accepting cash faced a higher liquidity crunch than those accepting payments through cheque/bank transfer.
Cities like Hyderabad, Pune and Bengaluru saw gentle appreciation in capital values in 2016 and this trend is expected to continue in 2017 since the residential markets incline and become more end-user-driven than even before. Sales momentum continued to remain constant throughout the year and is likely to pick up from 2017 after the dust has settled on demonetization, which made many buyers hold on their purchase decision in high hopes of some relaxation in residential capital values.
Modi Government’s target on affordable housing has made the term more acceptable to developers. The community now is not only entering this segment with confidence but also talking about it openly with more and more developers entering into the market to tap into huge latent demand. Along with this, private equity players are also joining hands with developers active in this space to fund such projects.
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