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Posted at: Dec 30, 2017, 1:42 AM; last updated: Dec 30, 2017, 1:42 AM (IST)2017- A YEAR OF CHANGES AND CHALLENGES

courting hope, handling despair

While RERA, GST, infrastructure status for affordable housing held the promise of a clean realty landscape, sales failed to pick up as the buyers waited for all the pieces of the puzzle to fit in place
courting hope, handling despair
Tribune photo: s chandan

Geetu Vaid

On the last day of 2017 the sentiment in the real estate sector is not much different from what it was on its first day. However, hope did sustain the slowdown-hit sector  this year as the stakeholders tried to move on from the demonetisation dread and opened the doors to let RERA, GST and an amended Benami Property Act enter the “house of chaos” that the Indian real estate sector was before 2017. 

The negative impact of the demonetisation move was apparent in the first two quarters of the year as far as home sales and new launches were concerned. The secondary market was the worst hit with transactions dropping by almost 50 per cent in the wake of demonetisation. The cash squeeze also put brakes on the new launches all over the country and this trend continued all through the year. 

While the first half of the year registered a 41 per cent decline in new launches all over the country, according to a PropEquity report new home launches dipped 83 per cent across top 8 cities in the third quarter of 2017 from 24,900 units to 4,313 units. This drop in new launches was also due to the developers’ focus on compliance with RERA and implementation of GST.

Affordable gains

However, if there was a silver lining to the clouds of despair enveloping the realty scene, especially in the residential sector, then it was the affordable segment. The Union Budget gave a solid forward thrust with the government granting infrastructure status to affordable housing. Though the Prime Minister’s ambitious ‘Housing For All by 2022’ was the trigger for offering sops to this segment, the hobbling sector and developers desperate for some leverage were quick to realise that this was the sunshine sector. According to Knight Frank homes priced below Rs 50 lakh accounted for about 71 per cent of the total launches between January and June 2017 — a 52 per cent increase from the corresponding period in 2016.  

The infrastructure status means opening up of avenues for cheaper finance for affordable housing. This made even high profile developers like Tata Housing, Godrej Properties, Omaxe, etc active in this segment. Apart from this many other measures  were also taken to benefit stakeholders of affordable housing. Thus, under the Pradhan mantri Awas Yojna (PMAY) the MIG-1 carpet area of 90 sq m was increased to 120 sq m and the earlier MIG -2 carpet area of 110sqm was hiked to 150 sq m. Affordable housing promoters were also granted more time for project completion — the deadline was increased to five years from the earlier three years.  The developers will, now get a year’s time to pay tax on notional rental income on completed but unsold units. The tenure for long-term capital gains for affordable housing was reduced from three to two years. 

To augment the sops announced in the budget, a new Credit Linked Subsidy Scheme (CLSS) for the mid-income group was announced with a provision of Rs 1,000 crore.

Year of end users — was it !

With RERA the realty sector entered the era of transparency and developers were made accountable for the promises made to the buyers whether it was the timely completion of a project or the construction quality or architectural parameteres. The developers’ lobby did term RERA as more biased towards homebuyers and tried hard to get some terms of the new law softened, but with little success. This, along with the price correction all over the country did put buyer in a commanding position making 2017 a year of the end users. But with several states delaying the setting up of RERA panels and notifying rules and the confusion regarding GST made the end users apprehensive about finalising their deals. As a result the sale volumes remained muted in 2017 and even the festive season sales were not very exuberant. “These radical changes have surely rekindled the interest level of global and domestic investors along with the fence sitters turning into end users”, says NAREDCO President Niranjan Hiranandani. 

Office and commercial space

While the residential segment occillated between hope and despair, the office and commercial segments remained upbeat in 2017. Office space growth remained strong in the metros on the back of stable demand. Bengaluru, Chennai, Hyderabad and Pune had vacancy levels of around 5-10 per cent, while pan India vacancy was at around 14-15 per cent. On the supply side, there is a shortage of grade A office space. It is less than half of the current office stock across top eight cities at 280 million sq. ft. “The gap between demand and supply of good quality office space is keeping office rentals strong”, said Sachin Sandhir, Global managing Director, RICS.  While occupier demand continued to rise in the office sector, there was no change in demand in the retail segment. “In comparison, retail properties saw significantly less rental value appreciation, especially in the National Capital Region. Mumbai and Bengaluru fared better”, adds Sandhir. 

landscape of hOme loans

Cheaper loan rate was expected to be an outcome of demonetisation move that left banks flushed with funds. Though all the major lenders reduced lending rates in 2017, the substantial difference that the homebuyers were expecting did not materialise. After demonetisation SBI brought its one-year MCLR down to 8 per cent after a major 90 basis-point cut. Other lenders also cut their home loan interest rates to around 8.35 per cent mark. In the last quarter of the year SBI announced another five basis point cut in MCLR which made its loan rate the lowest in the market at 8.30 per cent. Apart from cheaper loans the borrowers were also lured with innovative loan schemes like 1 per cent cash-back on every EMI as well as staggered waiver of EMIs on long-term home loans. 

construction sector

Note-ban also affected the growth of construction sector which dropped to  2.6 per cent in Q2 as against 4.3 per cent in Q2 of 2016-17. The production of cement registered growth rate of -0.4 per cent in Q2 2017-2018 against 3.4 per cent in Q2 of 2016-2017. The consumption of finished steel registered growth rate of  4.1 per cent during Q2 of 2017-18 as compared to 6.5 per cent during Q2 of 2016-17. 

New business models

In view of severe financial crunch, many developers under heavy debt, refrained from buying costly land for their projects. Rather, they preferred asset light model and joined hands with land owners or developers having land parcel, to carry out joint development. This is a win-win arrangement for both the parties as it amounts to saving on holding cost. 


Demonetisation squeezed liquidity out of developers, forcing them to change their business models. Businesses had to be realigned to comply with the stringent rules of RERA and GST. New project launches have slowed down and home prices seem to be under pressure.

Sachin Sandhir,  Global Managing Director – Emerging Business, RICS

A series of reforms and structural changes effected a surgical strike at market opacity, unaccounted funds transactions and customer victimisation. The entire real estate fraternity had to re-orient their businesses to sustain in the changing environment.

Anuj Puri,  Chairman, ANAROCK Property Consultants

A slew of constitutional reforms have re-written the functioning of the real estate industry in 2017. Right from January till the start of festive season 2017 was largely a year of slow market; sluggish sales and a ‘wait and watch’ attitude on part of home seekers. 

Niranjan Hiranandani, President, NAREDCO

It has been a year of disruptions. It would take about 18-24 months for the industry to recover from the effects of inventory overhang and regulatory interventions. Yet these disruptions are likely to drive the long term metamorphosis of the sector.

Ram Walase,  MD & CEO, VBHC

With the coming of RERA and GST the realty market witnessed a tumultuous change. Apart from this, the reduction in circle rates, twice this year has led to lowering of the costs which would boost the sector in the coming year.

Vineet Relia, Managing Director, SARE Homes

 2017 will go down as year of inflection point for the realty sector as the introduction of RERA promised a new era of transparency and professionalism. RERA promises to address the biggest issue concerning buyers — that of timely delivery of their homes and other properties. 

R K Arora, Chairman, Supertech Limited  

Realty players faced challenges to align their business to comply with the GST guidelines. Since GST was applicable on purchase of homes and under construction projects, homebuyers were neither opting for completed project nor putting their purchase decision on hold.  Rohit Poddar, Poddar Housing and Development Ltd 

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