Residential segment stirs to life

Vinod Behl

The housing market that had been witnessing a severe slowdown over the past few years, is witnessing recovery, largely on the back of sale pick up in affordable housing and ready-to-occupy segment. The latest statistics of home sales, clearly point to residential real estate recovery. According to Anarock research report, residential sales across top seven cities during the quarter ended March this year, have risen 10 per cent from a year ago. On a sequential basis too, the house sales registered 12 per cent growth in quarter ended December, 2017. With 2018 unlikely to see any price rise and buyers seeing more options in ready stock with significant increase in deliveries, the market is set for a slow but steady and sustainable recovery. There are five key triggers that are contributing to the revival of housing market.

Price cuts & waivers

Over the past few years, as homebuyers have been struggling to get possession of their homes, amidst large number of incomplete projects facing long delays, home sales saw a big dip. The tepid home sales in the last couple of years, saw property prices correcting across the country. According to a latest PropEquity report, property prices have seen a drop of 7 per cent during the first quarter of 2018 in nine key cities of Mumbai, Thane, Bengaluru, Chennai, Kolkata, Pune, Hyderabad, Noida and Gurgaon.

The base price has seen a visible correction of 3-5 per  cent across the country. But as that was not enough to drive sales, the developers, in addition, have been providing other benefits to homebuyers in the form of free modular kitchen, furniture and air conditioners. There have been waivers for parking, club membership, PLC, maintenance charges and in some cases even for  property registration charges. As such the homebuyers have been effectively enjoying a price cut of over 15 per cent. For the buyers of completed projects, it’s a double delight as besides standard benefits offered to buyers of under-construction projects, they save on GST. This price advantage has translated into sales pick up.

Low ticket home loans & interest subsidy

The twin factors of making housing loans available at lower rates, especially for low-cost housing and housing finance companies focusing on low-ticket loans to boost affordable housing, have contributed significantly to the revival of residential real estate. 

The home loan rates that dropped down below 8.5 per  cent were a major motivating factor for the aspiring homebuyers. Especially the Credit Linked Subsidy Scheme (CLSS) under Pradhan Mantri Awas Yojana (PMAY) that provides a substantial interest subsidy of up to 6 per cent ( maximum of 2.67 lakh) for affordable housing under EWS, LIG & MIG categories, has helped in boosting demand and sales.

This advantage is further complimented by Housing Finance Companies (HFCs), which are concentrating on affordable housing segment, offering small ticket loans of up to Rs 25 lakh. In view of good response from aspiring homebuyers, ICICI Home Finance is increasing its current loan book of Rs 10,000 crore to Rs 30,000 crore in the next three to four years, focusing on affordable housing. DHFL & Indiabulls Housing Finance have registered 26 per cent and over 34 per cent loan growth, respectively  in Q4 of FY'18. 

All these statistics clearly point to an uptick in housing loan offtake, signalling the revival of residential real estate.

Tax incentives for builders & buyers

The government policies to incentivise property developers and buyers, have provided the much-needed momentum to housing, particularly affordable housing segment. In order to encourage builders to push up the supply of affordable housing, the government had provided 100 per cent income tax relief to them, in addition to service tax incentive. Further, by giving infrastructure status to affordable housing, developers were incentivised to source cheaper capital.

Tax incentives were also provided to prop up home buyers. In addition to the tax benefits on home loans for both principal amount and interest paid, first time homebuyers were allowed to claim additional  tax deduction of up to Rs 50,000 per financial year. The 2017 Budget, reduced the holding period  for qualifying any immovable asset as long term from three to two years. As long-term capital gain is taxed at a concessional rate of flat 20 per cent  and also qualifies for reduction in tax benefit by investing in new residential property or in capital gain bonds, it was a relief for homebuyers. The 2018 Budget further proposed tax relief for buyers and sellers of property by allowing it to be valued at 5 per cent below circle rates for calculation of stamp duty and capital gains tax.

Funding boost

Capital crunch had been a  bane of the real estate sector. The general slowdown in economy that adversely impacted real estate, further got worsened due to fund shortage faced by property developers. And as it appears from the audit of developers, carried out by Noida & Greater Noida Authority, the cash crunch was caused due to diversion of funds collected from home buyers. So much so that even those developers who were sitting over land banks, could not monetize them for project funding as the land prices had gone down. However, these developers are now able to monetise because of newer emerging opportunities like warehousing thrown up by reforms.

But the big ticket reforms like RERA, GST and FDI liberalisation, have improved the sentiment of foreign/institutional investors. This has resulted in increase in flow of FDI to real estate. A Knight Frank study reveals that institutional investors like pension funds, domestic investors, sovereign funds, private equity have contributed $3.15 billion in Indian real estate. Further, the government’s policy initiatives have seen non- banking finance companies (NBFCs) and housing finance companies  in real estate developer financing, lending more liberally, especially to RERA- compliant builders and projects.

What more, the IPO funding route has also revived. And clearly, this funding boost is contributing significantly to the revival of real estate.

Delivery thrust

The failure of the developers to deliver projects on time has had a negative impact on customers. Not only have there been large-scale delivery defaults by developers, even the long delays of up to six years, completely shattered the confidence of homebuyers. According to a recent JLL report, there is a large inventory of 4.40 lakh unsold units which include over 4 lakh delayed units in key cities of Mumbai, Bengaluru, Chennai, Kolkata and Pune. The Real Estate Regulation & Development Act (RERA), however, significantly changed this dismal scenario. The severe penal provisions in the Act, have forced developers to avoid new launches and instead  focus on delivering the pending projects. Going by the statistics, over the past one year, the delivery of flats has gained momentum. Lodha Developers, the largest developer by market capitalisation, has managed to deliver 7,438 homes in the first three quarters of 2018, as against 5,677 units delivered in 2016-17.  Developers have realised gains of speeding up delivery in terms of improved cash flows and better buyer sentiment, leading to sales push.

— The writer is founder, Ground Real(i)ty Media, a real estate content consultancy