INSUBCONTINENT EXCLUSIVE:
The elephant in room is residential real estate, which is telling you not to uncork bubbly so soon or be so lavish with house-warming
party.
So, what's cooking
The residential segment is still a big mess, as demand crawls and supply is in abundance
The sector is grappling with various issues, namely liquidity deficit in aftermath of ILFS payment default, high cost of capital, below-par
sales and a string of stalled projects.
"The residential segment is facing serious headwinds at moment
Anarock Property Consultants
End users are obviously rejoicing, as prices have hit rock bottom and developers are bending over backwards to court genuine buyers
Sandeep Raina, Associate Director, Edelweiss Investment Research, says: "A full-fledged recovery in residential space is at least 12-18
months away, given recent liquidity crisis and slower-than-expected sales recovery
Launches have dropped drastically with many under-construction projects getting stalled due to funding issues," he said.
But it's not all
You can still have your share of indulgence as commercial real estate promises exciting returns, going forward.
"In current market,
for well-located office properties has been exceptionally high with rental yield going as high as 10 per cent in certain markets," Puri told
ETMarkets.com.
And steep pricing should be no dampener there
These will operate like mutual funds for real estate and allow investors with budgets as low as Rs 2 lakh to invest in this thriving segment
Will 2019 turn out to be any bit smooth, then
Raina says demand in office and retail sectors will continue to beat supplies, leading to
lower vacancies and higher rental yields in 2019-20
Also, private equity participation is quite high in commercial assets, which lends more shine to this space.
Affordable and mid-income
segments are likely to get top billing, with better sales in 2019 against luxury category, as government doubles down on its housing for all
promise.
Puri thinks consolidation is way forward and industry can't avoid it
He sees a clear trend towards affordable housing by leading developers, but new project launches could fall off curve.
When it comes to
liquidity, he doesn't expect any significant improvement until at least first half of 2019
"While housing prices will remain flat, private equity players will continue to make select investment forays
Ready-to-move-in housing will take centrestage, as do alternate asset classes such as student housing, senior living, warehousing and retail
in tier II and III cities," Puri said.
The liquidity crisis that roiled NBFCs (non-banking finance companies) and HFCs (housing finance
companies) almost broke back of sector, as accessing capital from lenders got a lot tougher
Raina is hopes for a quicker resolution can put things back on track.
"Recent liquidity crisis led to funding issue for local developers and
a few big developers, due to which many ongoing projects have got stalled
A quicker resolution of liquidity crisis is important
layer of price to already existing high-priced units
Raina makes a pitch to rationalise stamp duty, which in turn can drive volumes to offset lost revenue for states.
The road is still not all
Industry players find high GST as a thorn in crown
"High GST rates have deterred several homebuyers from buying under-construction properties in 2018, their preference is largely tilting
towards ready properties only, which is exempt
The government is discussing reducing 12 per cent GST rate on housing to boost demand in 2019
If a lower GST is approved, it will be a major boost for residential segment," Anarock chairman said.
From a policy perspective, government
may have shown a clear intent to remove bottlenecks, with a clutch of reforms such as GST and IBC (Insolvency and Bankruptcy Code)
RERA (Real Estate Regulation Authority) is also a case in point, but its implementation leaves a lot to be desired and remains patchy so
far.
"Even after one-and-a-half years since its implementation, it falls way too short of mark
As it stands now, there are quite a few states still in process of notifying RERA rules, while there are others where buyers have been
continuously complaining about dilution of notified rules," Puri pointed out.
Elevated cost of capital to finance projects is another pain
neck for builders and developers
In absence of bank finance, developers are turning to PE (private equity) funding and other non-formal ways to bankroll land purchases,
ultimately pushing up cost of capital drastically.
With pan-India property sales looking a pale shadow of its former self, Bengaluru is a
In commercial space, Garden City tops pack that is likely to see an uptick in 2019 from both demand and supply points of view, with NCR and
Hyderabad following closely
Going by Anarock data, Bengaluru saw maximum absorption at nearly 12 million square feet in 2018, an annual jump of 37 per cent
The trend is likely to continue if macroeconomic indicators stay favourable.
"For past several quarters, sales have exceeded launches in top
seven cities and unsold inventory has come down to nearly 5,00,000 units as of H1 of 2018
Unsold inventory remains highest in NCR region, followed by MMR region and Bengaluru," Edelweiss' Raina said.
"Bengaluru and Hyderabad
markets are expected to continue to do well with consistent sales momentum," he said.
So, it's advantage commercial realty
and maintain a long-term horizon of at least 5 years
The residential segment will take time to pick up
Office and retail sectors are making all buzz
"For an investor with a minimum 3-5 years of horizon, one can look at a few micro markets for residential real estate investment, as shift
takes place from unorganised to organised segments
Office and retail sectors can be considered good investment options for yields to tune of 10-13 per cent," Raina said.
Khushru Jijina, MD,
Piramal Capital and Housing Finance, has last word
"Calendar 2018 was a moderate year for real estate sector with various external shocks like demonetisation, RERA and GST affecting buyer's
confidence across markets even though longer-term impact of these regulatory measures was seen to be largely positive," he said
Against this backdrop, 2019 kicks off on a subdued note in run-up to general elections, due sometime mid next year
Look, what 2019 may hold for you!
