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While a large section of developers have called 2017 as a year of consolidation, 2018 could be a year of confusion. The regulatory changes of 2017 have left many developers confused over streamlining of processes. Buyers, on the other hand, 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 is likely to remain at a standstill, given that the job market is not picking in any given industry.
Policy changes: Short-term pain but long-term gain
Developers, however, remain optimistic, citing policy changes such as the Real Estate (Regulation and Development) Act (RERA), demonetisation, the Goods and Services Tax (GST), the Benami Transaction Act and infrastructure status to affordable housing.
Jitu Virwani, CMD of the Embassy Group, maintains that 2017 has been a positive year, despite the short-term turmoil. It is imperative that we have a larger outlook of three to five years, to see significant outcomes of the key measures implemented in 2017, which will help businesses, investors and consumers to continue investing in India’s growth story, he says. “In terms of reforms, RERA will enforce timely delivery, accountability and transparency. It will certainly add costs and in the short-term, delay project completions and also launches. However, once this supply/demand mismatch catches up, RERA-compliant homes will boost consumers’ confidence in the sector,” says Virwani.
Bijay Agarwal, managing director of the Salarpuria Sattva Group, agrees that policies like RERA, REIT and GST, will boost buyers’ confidence towards real estate. Trends that we saw in 2017, like the growth of the affordable housing segment and co-working spaces and the transformation of the office sector, will continue, he predicts. “If you are transparent, loyal and honest, you will be rewarded by the customers. One thing to be avoided, is that you don’t stretch yourself, vis-à-vis debt,” he advises.
Developers to focus on reevaluating their business models
Rattan Hawelia, chairman of the Hawelia Group, points out that one of the highlights of 2017, was the fact that many developers faced tough times, as they excessively expanded their scope of work, without proper planning.
“Now, developers are streamlining their professional practices and adopting a transparent mode of dealing with their customers. They have understood that instead of being only a product and promise-based industry, real estate is more about services and addressing the concerns and issues of consumers in a realistic manner. The intent, is to prioritise customers’ needs and focus on their actual problems,” says Hawelia.
Moreover, because of various government initiatives, buyers have better knowledge and are well-informed of their rights, he adds.
Major real estate trends in 2018
According to research by Track2Realty, seven distinct trends are likely to define the real estate market in the year ahead.
Oversupply defeats affordable housing:
While affordable housing is the focus of the market today, not every mass housing project will work, especially those that only offer bare-shell units. A case in point, is markets like New Rajarhat in Kolkata and Noida Extension in Delhi-NCR, where houses at the rate of around Rs 3,500 per sq ft have few takers.
Research to define demand:
Developers will be left with no choice but to get into serious research, vis-à-vis the demand in the given market.
Only the right property, in the right market and at the right price point, will sell. One can even sell luxury housing in tier-2 cities, if the developer knows his audience, their purchase parity and customises his offerings.
Affordable luxury will be the market driver in the year ahead. In some of the nondescript markets with oversupply of mass housing, the projects that are selling are the ones where the developer has tried to add aspirational elements to the projects.
Developers are left with no choice but to go for smaller projects, or to split large projects into phases. This would not only save them from RERA penalties, but would also take care of cash flows and allow for course corrections, if needed. Developers will also strive to avoid inventory overhang, in the year ahead.
Focus on execution:
2018 will be the year of execution. With a large number of projects running behind schedule, the year could see good supply of houses, across the major markets of India. Developers will prefer to deliver existing projects first, rather than going for new launches. Land bank has already turned out to be a liability for many and hence developers will be unwilling to invest in a pipeline of 10-20 years.
Joint ventures, joint developments and consolidation:
The JV/JD model will become more prominent in 2018 and there will be major industry consolidation. Some of the distressed and fiscally mismanaged developers will be taken over by larger players. This trend could possibly clean up the market, to some extent.
Growth of tier-2 cities:
Increasing traffic congestion in cities may reduce employees’ productivity time. This, along with the higher compensation paid to migrant workforce in the metro cities, is likely to force companies to evaluate their cost of doing business per sq ft and consider the prospects of operating out of tier-2 cities. The demand would thus, force the developers of commercial projects towards tier-2 cities.
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.
(The writer is CEO, Track2Realty)