The First half of 2017

The starting of 2017 was a stressful time for real estate market. The entire nation was grappling with the aftereffects of a surprise demonetization move by the Government. The huge shortage of cash showed its effect in real estate transactions as well, especially the secondary real estate market. The Real estate market can be divided into two parts: The primary market and the secondary market. The primary market consists of the new property market. This segment is mostly funded through home loans and other cashless avenues and hence the impact was very low in this segment. The secondary market consists of Property resale and land transactions. A large section of the transactions in this segment happened through cash. With the shortage of cash, the demand for such property decreased which increased the bargaining power of the buyers. Thus, the prices came down significantly for secondary market properties.

The second half of 2017

This was six months ago. We’ve come a long way since early 2017. The effect of demonetization on shortage of cash is almost over. Digital transactions had increased 23 times in April 17 compared to a year before. As such, the price dip in secondary market is no longer seen. Hence, looking forward it is important to identify other significant factors that are likely to impact the real estate market. So here are 5 factors that are likely to impact the real estate market in the coming months in the following ways:

  1. High Demand for Affordable Housing:
    The impact of GST is expected to reduce the cost of affordable housing in the short run. It reduces the logistics costs and material costs for low cost housing sector and also lowers the tax rate on these real estates. As such, it is expected that the low and mid ranged real estate would become much more attractive options to their target audience. For more information, read this article on how GST will affect the Indian real estate market.
  2. Higher transparency in property deals due to Implementation of RERA:
    merlinprojects.comOn May 1st 2017, Real Estate Regulation Act (RERA) became effective. The RERA Act makes it mandatory for all real estate projects over 500 square meters or eight apartments to register with the regulatory authority of RERA. Currently there is a huge gap between the demand and supply of real estate property in India, especially in metros, with supply far exceeding the demand. A stricter compliance procedure will ensure that parity will be brought between the demand and supply in the long run.
    A stricter compliance rate will also bring much more transparency into the information flow between the buyers and the sellers. Hence the buyer will be able to make a much more informed and educated decision and the builders would be forced to price the property appropriately without any inflation. This will help the market as well as the buyer. So, to conclude RERA would make the process of Buying and selling Real Estate much more transparent and convenient. However, a word of caution for those who are willing to make a purchase within the next few months. There are a lot of real estate properties that had been under construction long before RERA was implemented. As such they could face a huge challenge in making them abide by the regulations. The builder might have to incur significant costs for this and they might pass this cost onto the buyer. Hence it is imperative that the buyer checks whether the property complies with the regulations before making the purchase.
  3. Fantastic long-term prospect in Lower Tier Cities:
    In the long run, polices such as AMRUT, Smart cities etc will increase the inflow of FDI in the real estate sector. This is expected to make the real estate market much more attractive, especially in the Tier 2 and Tier 3 cities.
  4. Lower Home Loan Interest Rates: Home loan interest rates have been decreasing since the last few years. This downward trend is expected to continue in the coming months. Due to low demand in real estate market, developers and financial institutions are coming up with more and more attractive housing loan policies to keep the market intact. While the property prices over the last four years have remained relatively stable, housing loans are becoming cheaper. In fact, some private players have started offering loans at 6 to 7 % interest rate, which is quite low. They are also offering other attractive schemes like “book now, pay after three months” for properties nearing completion. Hence ready to move in properties are very attractive in the current market.
  5. Brighter long-term prospects due to Business Revamping by Realtors:
    The last one-year has been considerably challenging for real estate developers. Major policy changes like GST, Demonetization, RERA and Benami Property Prohibition Act have forced developers to change their business model significantly. In the short run, they have to incur significant costs to go through this transition. However, due to the low demand in the market, the cost incurring is not being transferred on to the customers. As such the buyers are relatively insulated from a price raise. In the long run, this revamping will also make real estate a much more attractive market both for the buyers and sellers.

The Real Estate market is going through a transitional phase. Once this phase is over, we can expect the Indian real estate market to show the same kind of robust growth as in the later period of the last decade. The current trends of 2017 already points to a better growth in real estate compared to last year. Property prices will remain stable for a while until the internal market dynamics and business processes are completely revamped. Once the transitional phase is over, real estate market is expected to show the same growth rates as the last decade but without the inflated price of those times.