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realty swing — 2018

Affordable for residential; flexible for office

The year 2018 considered to be a year of consumer and affordable housing, has been marked by several distinct trends

Affordable for residential; flexible for office

Vinod Behl

The year 2018 considered to be a year of consumer and affordable housing, has been marked by several distinct trends

Preference for ready-to-move-in properties

Though the Real Estate Regulation & Development Act (RERA) that came into force last year was meant to safeguard the interests of property buyers, yet it has so far not proved very effective in terms of allaying the fears of home buyers, particularly with regard to buying under-construction residential property that has seen time overruns of up to five years or even more.

In order to ward off any development risks and ensure safe investments, home buyers this year, have shown preference for  ready-to-move-in properties over under-construction properties. Besides ensuring secured investments, ready-to-move homes with occupation certificate from development authorities, also provides cost benefit  as it entails saving of 12 per cent GST on mid-segment, premium and luxury housing and 8 per cent on affordable segment of housing. In view of this demand trend, developers have been focusing on projects completions to create a good inventory of ready projects to push sales. As per  data provided by consultancy firm ANAROCK , out of 6.87 lakh units as of Q3 2018, across 7 top cities, 90,000 units (amounting to 14%) were ready-to-move in  properties with completion certificate, entailing zero GST.

Rise of co-working spaces

The year also saw the concept of flexible spaces — both work and living —  gain traction. Traditional work spaces have been giving way to more swanky,  tech-enabled, flexible and cost-effective work spaces. According to Nakul Mathur, MD, Avanta India, as more and more professionals, start-ups and companies are realising the benefit of optimum and productive use of  flexible work spaces, this segment is gaining momentum. And considering that this is no more restricted just to start-ups and has also embraced corporates, co-working space will disrupt the traditional office leasing in a big way.

That co-working space is on high growth path is evident from  Colliers International statistics of 2m sft of flexible work space transacted during the first eight months of 2018 and it is expected to go up to 9 msft by 2020.

According to JLL, some 13.5 million people will work out of co-working spaces by 2020. Gurugram, Mumbai and Bengaluru are expected to take lead in this market. Together with co- work spaces, organised co- living space has also seen 100 per cent growth in one year. Though this concept is  in its nascent stage and restricted to metros, with facilities like cleaning,  maintenance and laundry offered by the players, the concept of  co-living   spaces will only gain traction in the coming years.

Shift to financial assets

The year did not see considerable improvement in the fortunes of  real estate,  especially residential real estate due to development risks and concerns about   the safety of investment. Higher transaction costs due to GST was also a dampener for investors. With 12 per cent GST and about 6-7 per cent stamp duty, the transaction cost on real estate is as high as 18- 19 per cent, compared to the pre-GST era where the transaction cost was in the range of about 12-13 per cent (6 per cent service tax and VAT plus stamp duty). Though there is a provision of  Input Credit Tax, but as of now this relief is not being passed on to buyers.

 Investors, HNIs and ultra HNIs who had been investing in luxury residential real estate, were discouraged due to stagnation /decline in prices. Along  with lack of appreciation, about 2 per cent of rental return was also a dampener.

In this backdrop of under performance of real estate, rich investors have been  preferring financial assets over real estate. The recent Family Wealth Report 2018  by Edelweiss and IIFL Wealth Index 2018 found that HNI investors are shying away from  physical assets and opting for financial assets. 

BUyers’ favourite

The buyers’ trust that had been  hit severely in the past couple of years due to defaults by developers in delivering residential units, saw little improvement in 2018. This trust deficit impacted sales negatively and the luxury segment was the worst hit. 

But it was the affordable housing segment where home buyers showed their interest and confidence. The year saw  developers taking to affordable homes in a big way. Even established builders operating in  premium and luxury segment took to affordable housing due to market demand and their desperation to generate cash. Keeping in view this trend, maximum new launches were in this segment only. Covered under RERA, the projects offered  investment security to buyers. Not just that, they had the double benefit of lower (8%) GST on   affordable homes. 

Moreover, the home loan interest subsidy of Rs 2.67 lakh offered by the Centre on affordable homes  was a major attraction for buyers.

It was not just affordable homes, the home buyers also showed interest in compact cost- effective mid- segment homes as interest subsidy is available on these also. Keeping in view the market trend,  some developers of luxury   homes, came up with affordable luxury homes which did pick up sales. Since considerable amount of ready-to- move inventory was available in the market, it also pushed the sale of affordable and mid-segment  homes.

Demand for plots

2018 saw the trend of developed plots catching the fancy of investors who have been wary of investing in apartments due to flat prices and low rental returns of just about 2 per cent. The large scale delivery defaults by developers in their residential projects kept the buyers/investors away from under-construction properties coming  with development risks and high GST. Thus, investors have been increasingly opting for developed plots in townships. Such developed plots in cities like Amritsar and Ludhiana have been in demand. Developed  plots by private builders under Deen Dayal Affordable Plotted Housing  Scheme of Haryana have equally been  in demand. In southern states of Tamil Nadu and Karnataka, leading developers of Chennai and Bengaluru have also forayed into this segment.  Developed plots both in affordable/mid-segment have been in demand this year. 

— The writer is founder, Ground Real(i)ty Media

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