The Indian real estate market, excluding two metros, grew 30 per cent during 2017 on the back of consumer spending on housing, according to the International Property Consultants’ India report for 2017. The overall growth in the real estate sector was at 27 per cent in 2017.
The report, published on Tuesday, compared retail sales growth at 8 per cent and 15 per cent in Mumbai and Bengaluru, respectively, with 4 per cent growth in Delhi-NCR. The retail sector grew at a compounded annual growth rate of 8 per cent for 2017.
The increase in the demand for high quality retail space came during a year of flux in the sector. The federal and state governments announced a slew of measures in the real estate sector during 2017.
The implementation of the Real Estate (Regulation and Development) Act (Rera) was announced in 2016, and it did not take off. While the implementation of Rera is expected to be in phases in the coming months, the government’s efforts to boost housing for the urban poor has been cheered by the industry.
“The increase in demand for retail space came during a year of flux in the sector. The federal and state governments announced a slew of measures in the real estate sector during 2017.
The implementation of the Real Estate (Regulation and Development) Act (Rera) was announced in 2016, and it did not take off. While the implementation of Rera is expected to be in phases in the coming months, the government’s efforts to boost housing for the urban poor has been cheered by the industry.
The increasing relevance of retail in India’s current financial and economic landscape is certainly good news for the sector. This, in turn, is likely to drive the growth of all the other sectors,” said Archana Oswal, managing director, ICRA Limited.
After a weak 2016, retail sales returned to a normalcy in 2017, with 12 per cent growth. “Overall sales of an average $1,000 in the retail segment suggest a year-on-year retail real estate industry growth of about 28 per cent in 2017,” said the report.
Domestic real estate players enjoyed the tailwinds of a strengthening economy and continued economic reforms, but the sector could have done better, analysts said.
The ongoing implementation of Rera in the real estate sector is a positive factor, according to the experts, and it could lead to better accountability, transparency and stability in the sector.
The industry has been muted and cautious since demonetisation was announced in November 2016 and things improved from March 2017, when the implementation of Rera in the seven major cities, such as Mumbai, Bengaluru, Kolkata, Hyderabad, Chennai, Pune and Ahmedabad, was announced.
Also, the Reserve Bank of India’s (RBI) directive to banks to start insolvency proceedings against real estate companies that have defaulted on their debt repayment to banks is another positive development for the industry. It will make the space more attractive for foreign investors.
New realty sales were at 12 per cent in 2017, while sales of properties in the secondary market continued to lag.
“There were more projects in the secondary market that contributed to the overall growth of realty sales. Some of the projects are yet to be launched and are yet to be sold,” said a sector analyst requesting anonymity. The quality of stock for sale in the secondary market has come down since many developers have been hitting the share market for funding.
New launches of retail projects increased in 2017, with more launches of high-end residential projects than in the secondary market.
Also, real estate developers have started focusing on bringing better standards in the secondary market, to compete with the secondary market projects from new developers. The secondary market has been experiencing oversupply.
“While it is encouraging to see developers keen on launching new projects in the market, I believe they will have to bring better standards to the secondary market to compete with new projects,” said Oswal.
2018 could be a better year for the sector. The government is committed to addressing the sector’s current challenges through policy measures, including Rera implementation. It is now working towards implementation of the Housing for All by 2022 mission.
“Housing for all remains one of the big challenges that the industry must focus on. It will attract domestic and foreign investment into the sector, which will ensure that the sector has the scale and depth to grow,” said Manoj Gaur, chairman and managing director of JLL India.
In response to demonetisation and the Rera implementation, developers slowed down their projects and buyers started facing difficulties in buying homes.
However, many developers have been selling off unsold inventory. “Apart from real estate players, there are other stakeholders that will benefit from a successful implementation of the housing for all mission. The government’s efforts to develop infrastructure, urbanisation of the population and the rising incomes will help the industry become more competitive,” said Manish Agarwal, vice-chairman and managing director, Heritage India.
The private investment in the real estate sector has remained tepid as the sector struggles to regain its footing after it got hit by demonetisation. Most housing and construction projects remained stalled due to cash crunch. Also, the ongoing slowdown in the sector led to a wave of distressed sales of the unsold inventory, as some developers started losing money.
Although the realty sector grew in 2017, there are a lot of challenges that the sector has to address to sustain the momentum. The sector could soon face the liquidity crunch as the affordable housing sector is not picking up.
"Until there is an equilibrium in the market, one should not be too optimistic,” said Agarwal.
Year 2017 was also a watershed year for the Indian market. For a second consecutive year, the property market remained subdued.
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