The real estate sector in India has been in the news for all the right reasons in the recent past. The Real Estate Regulation Act (RERA) model bill was successfully piloted at the national level and as of May 01st 2017, it has become law in most states. Of course, their arguments that the RERA has been diluted at the state level but that is still a good leap from what we had a few years ago. They there is the big story of global investors getting seriously interested in investing in Indian property portfolios. That is a trend that could lead to a serious institutionalization of property ownership. While this is currently focused on commercial property ownership, the trend is likely to spread to residential ownership too. So, what could be the key real estate trends for the year 2017-18?
Ten key real estate trends for the fiscal year 2017-18..
1. On the residential front, the RERA is likely to force developers to restructure their business models. The current model of builders getting lax on the delivery front will not be possible any longer. With strict requirements for adherence to delivery timelines and stringent penalties for delays, the builders are not likely to be taking any chances. They will be forced to take a relook at their current business models in its entirety.
2. The Indian real estate business may end up with a greater degree of transparency and accountability; something that had been long called for. With the RERA focusing on standard norms for quoting prices, registration of builders and greater transparency on the usage of funds, the ultimate beneficiary will be the consumer.
3. The real estate broking industry is likely to get more organized. The commercial side of the property business in India is largely organized with the advent of global players like JLL, Cushman & Wakefield, Colliers and Knight Frank into India. However, the residential property brokerage business is more fragmented, region-specific and therefore more unorganized. With standardization of processes and the registration requirements for agents, we may see the beginning of greater professionalization of the residential real estate broking business in India.
4. Global Private Equity and sovereign funds could make show greater degree of interest in Indian property market. In the last couple of years we have seen big deals on this space like the deal between Rahejas and Blackstone as well as the deal between DLF and Temasek. Of course, for the time being, this interest will be focused only on the commercial real estate space.
5. This will be an extension of the previous point. More number of real estate companies will look to restructure their business along vertical commercial and residential lines. We have already seen that in case of Indiabulls Real Estate and that is likely to become more popular. With PE funds interested in commercial portfolio, real estate developers may increasingly look to separate their commercial and residential businesses to get a better SOTP valuations.
6. If demonetization was the big trend that pushed real estate business more into organized hands in the previous year, then GST could be the big game-changer in the current fiscal year 2018-19. The implementation of GST effective 01st July 2017 will have larger implications for sale of real estate, registrations and the tax effect. This will be an interesting trend to watch out for.
7. REITS (Real Estate Investment Trusts) could be the big story for the fiscal year. The government has already clarified on the tax implications front and that should satisfy the REIT investors. For small and medium investors, REITs will offer a novel approach to creating a diversified portfolio of real estate assets and also earning tax-efficient returns in the process.
8. We could see many more large business groups initiating real estate arms to handle and monetize their real estate holdings. Most large Indian companies are holding on to prime property across India. More institutional funding and a more organized real estate market will mean greater scope for companies to create a dedicated business model out of real estate.
9. Not to forget, there will be the big thrust on affordable housing. That is likely to be a multi-year and multi-billion dollar opportunity. Of course, the economics are still not too certain but builders will have to revamp their models accordingly. That could be an interesting space to watch out for.
10. Finally, expect the number of real estate developers in India to reduce drastically. The big trend this year could be the move towards greater institutionalization and greater professionalization of the real estate business in India. With RERA and REITS, India may have just about taken the first step towards a more organized real estate market. Consolidation may finally be here!
The ten trends above are indicative and not necessarily exhaustive. The best for Indian real estate may be yet to come!
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