- Date : 04/02/2019
- Read: 6 mins
This year seems to hold promise for developers as well as home buyers/investors, believes Amritesh, an experienced professional in Finance.
The real estate sector has remained subdued for quite some time now, impacted primarily by the shift in economic policies and reforms introduced in the last couple of years. In 2018, a majority of asset classes witnessed a slowdown due to the weakness in the global market and softening of the domestic market due to reforms in economic policies.
This, along with the implementation of the Goods & Service Tax (GST), resulted in further weakening of demand in the realty sector, which was already reeling under the impact of demonetisation. Developers were again caught off-guard after the NBFC liquidity crisis post the IL&FS debacle, and the introduction of RERA (Real Estate Regulations Act).
However, 2019 seems to hold promise for developers as well as home buyers/investors. With the elections due in summer, the first half of the year may account for slow growth. But things are expected to gradually pick up in the latter half of the financial year. Eyes will also be on the Interim Budget 2019 as it could offer additional relief to the industry.
The real estate sector could offer a win-win situation for builders as well as investors, as the market offers a great platform for both to explore in the coming months. Let’s dig deeper into the prospective scenarios for both entities.
Coming from a difficult period post demonetisation, the scenario is expected to gradually change for realty players. GST and RERA are expected to infuse greater transparency and accountability, paving the way for institutional investors to explore the potential within the industry. This would also help to fill the void created by the NBFC crisis.
Developers will also benefit from the focus on the infrastructure development and clearance of pending projects after the elections as the new government (irrespective of who comes into power) will seek to push economic growth. In fact, GDP for 2019 is expected to grow in the range of 7.3% to 7.5% as per estimates.
Commercial spaces are also expected to witness growth, especially in the top-tier cities, as the fundamentals look strong and the economy is expected to do well. Organisations will naturally be looking to expand their infrastructure for improved business opportunities.
Builders will also look at clearing inventory in the residential sector, along with adjustments for new inventory, which should allow prices to remain competitive. Developers may also be able to reduce costs as GST is not being levied on projects that receive a ‘completion certificate’.
The government is encouraging the development of affordable housing projects and extending tax benefits under Section 80-IBA to builders and promoters. This is aimed at providing homes to the economically weaker sections of society. RERA is also expected to discourage casual developers, ensuring fairness and a cleaner mode of business for all.
However, the industry has to overcome liquidity issues and ensure compliance with the latest regulations. The upcoming year is expected to offer significant opportunities, so long as developers are prepared to overcome the challenges coming their way.
For potential buyers, this could be the perfect opportunity to buy a new home as prices are expected to remain subdued in most cities. The introduction of RERA, along with GST benefits, will provide a favourable environment to invest in real estate.
Furthermore, tax deductions on home loan interest repayment, along with additional benefits under credit-linked subsidy schemes (CLSS) for economically weaker and middle-income groups, will provide an ideal platform for home buyers.
RERA also brings transparency into the sector as noncommittal developers will eventually be eliminated from the Industry, ensuring a clean platform with enforced commitments to meet the promises made to buyers. The upcoming elections and Budget 2019 could offer additional incentives for investing in real estate.
In terms of return on investment, one may not reap great short-term returns but with reforms falling in place and the industry settling down, demand for real estate is expected to witness an upswing. Regulatory reforms backed by government initiatives are definitely going to help the industry gain momentum.
The overall scenario
The industry is expected to shrug off the slowness, with growth expected to gain momentum in the last quarter of the year. The decision of SEBI (Securities and Exchange Board of India) to permit REIT (Real Estate Investment Trust) to allow investors to invest in the realty sector is expected to resolve the liquidity issue.
Developers will also look to utilise the tax benefits and incentives post the reforms to lower costs and build sustainable business models. The demand for housing and infrastructure is expected to boom as the economy is projected to grow at a good pace. Increase in income accompanied by an improved standard of living will usher in the demand for homes.
For home buyers, the current scenario provides a good opportunity to invest in a house and enjoy the tax benefits and incentives offered against the same. Comparatively lower cost is one more factor that investors can consider while purchasing a new home in 2019.
After years of stagnation, the real estate industry is expected to overcome the odds. The election period may witness some slowdown, but irrespective of the outcome the industry is expected to do well in the near future.
About the author: Amritesh Sinha is an experienced professional in the fields of HR and Finance. Currently, working as HR Consultant and is the Founder of Wealthtech Speaks Blog. Previously, he has been associated with one of the Top IT Company in India. He holds a dual masters degree, MBA (HR) & M.Com (Finance). He has also undergone Executive Human Resource Program (EPHRM) from IIM-C and CS (Exe) from ICSI respectively.
Disclaimer: The opinions expressed in this article by Amritesh Sinha are his own, and do not necessarily reflect those of TomorrowMakers.com or its owners.