On the road to recovery : The Tribune India

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Round-up 2018 overview

On the road to recovery

Year 2016 was when the government initiated measures to purge India''s real estate sector of its ills.

On the road to recovery


Year 2016 was when the government initiated measures to purge India's real estate sector of its ills. As is true of all reforms, a knee-jerk reaction came the following year. Consequently, the combined effects of the real estate law, the goods and services tax and demonetisation hurt India's real estate sector in such a manner that 2017 became one of the worst years for residential real estate. Sector experts hoped for better times in 2018. Since the year is approaching an end, it may be a good time to reflect how this year has performed against those expectations.

To begin on a bright note. The downslide in homes sale numbers has been arrested and the sector has moved out of bottom of sales cycle. Since building within the deadline is mandatory under the real estate law, completion rate of housing projects has improved, too. While there is a lot to be done before it is able to benefit the sector in a manner it is expected to, the real estate law has gained ground in 2018. And, affordable housing continues to get government's attention. However, the sector is not short of challenges as issues pertaining to lack of capital have emerged during the year while some bankruptcy cases against developers stay unresolved.

Sales, launches and other key metrics

Homebuyers in nine major cities of the country are likely to buy nearly 3.1 lakh housing units from real estate developers in the Calendar Year 2018. This is 25% more than 2017, according to PropTiger Data Labs estimates. The Mumbai Metropolitan Region (MMR) alone will sell more than 1 lakh units in 2018, 34 per cent higher than the previous year. Pune is also reporting an increase of 47 per cent in sales in 2018 over the previous year. Both the cities benefited from a proactive real estate regulator. Southern cities also recorded increase in sales volume compared to previous year. In north, Noida has shown improvement in sales on the back of price cut undertaken by most developers. With sales improving, developers will also be able to focus better on project completion. 

Amid liquidity crunch and inventory abundance, developers, who have to strictly follow deadlines under the provisions of the RERA, exercised caution in launching new projects. Only 1.9 lakh new units were launched in 2018, approximately 22 per cent lower than 2017. Except Bengaluru and Chennai, all other cities have seen a continuous fall in the number of launches over the quarters. The MMR and Pune collectively witnessed a decline of 39 per cent in new supply as compared to previous year. Hyderabad also reported a decline of 21 per cent in launches over the previous year as the Telangana RERA became fully functional only in late 2018. Launches reduced by 10 per cent in Ahmedabad as the Online Development Permission System (ODPS) failed to kick off in Gujarat, leading to a delay in project approvals. The state government revoked the ODPS recently which is likely to increase the launches going forward.

Combination of drop in new launches and improvement in sales has brought down inventory overhang to the lowest in the past five years. Currently, we have only 29 months of unsold inventory at aggregate level of the nine cities. There will be over 7.5 lakh apartment and villa properties available for sale with developers in the top-9 cities as on Dec'18. Unsold inventory decreased by 14 per cent in 2018 as compared to 2017. Hyderabad has the lowest inventory overhang of 18 months whereas Ahmedabad has the highest inventory overhang of 48 months.

Across cities, there has been a significant rise of 55 per cent in unit completions over the previous year. Mumbai and Pune contributed nearly 36 per cent of the total unit completions during 2018. Kolkata on the other hand witnessed a decline of 19 per cent in the number of units delivered. Going forward, around 8.78 lakh units are likely to be delivered by the end of 2020, of which nearly 2.5 lakh units are expected to be delivered in Mumbai alone. 

2017 2018 (Est) YoY %

Units Launched           242,633 190,437 -22%

Units Sold          249,057 310,685 25%

Units Delivered          320,522 498,077 55%

 RERA gaining ground

Most states except the Northeastern states have now implemented RERA. Northeastern states have also recently agreed to implement the law in coming months. Almost 33,800 projects and 26,000 agents are registered on a pan-India level with state RERAs. The MahaRERA has the highest number of project and agent registration, with a total of 18,392 projects and 17,180 agents. The Gujarat RERA holds the second position, with 3,880 project registrations, followed by the UPRERA with 2,514 project registrations. West Bengal is the only state which introduced its own version of RERA, the West Bengal Housing Industry Regulatory Authority (WBHIRA), with diluted provisions.

Since its implementation, along with large number of projects registered with the RERA, the law has also been active in resolving homebuyers' gripes. The MahaRERA has resolved almost 3,000 complaints out of 4,900 complaints received while the UPRERA has received 8,100 complaints, the highest among all the states and resolved only 2,200. State authorities have also been launching measures to pressure developers who have not unregistered projects to comply.

In coming months, state authorities will work on implementing other important clauses of Act such as quarterly update of information, monitoring of use of funds kept in specified project account, undue delay in completion dates registered with the RERA by promoters and title insurance. 

Capital scarcity bites

The sector was already cash starved and the ongoing crisis pertaining to non-banking finance companies crisis has made it further difficult for real estate developers to raise funds. While direct funding is already impossible, home loans driven funding has also dried up during the year. Only good news for the sector is increased participation of private equity funds which invested $3.37 billion between Jan-Oct 2018. Overall, Mumbai has been the preferred destination attracting over 50% of total investments, followed by Hyderabad and Bengaluru. Most of this investment has, however, gone into the commercial realty segment. While GIC's invested $1.5 billion in DLF, Blackstone investment $742 million in Indiabulls Properties and Indiabulls Real Estate. Brookfield Asset Management put in $384 million in Essar Group's Equinox Business Park and Xanders invested $350 million in Phoenix's Hyderabad office project.

To tide over capital woes, many developers were seen forming joint ventures with better funded partners. This has resulted in consolidation of top developer's position in new launches. 

Affordable housing continues to be in focus 

The government has made many relaxations in its policies to promote affordable housing. It has reduced the GST rates from 12 per cent to 8 per cent on houses constructed under the Pradhan Mantri Awas Yojana (PMAY), it has increased the carpet area for units meant for the middle-class (MIG-1 and MIG-2). For MIG-1, it has been increased from 120 square metre (sqmt) to 160 sqmt and for MIG-2 from 150 sqmt to 200 sqmt. The government has also created the National Urban Housing Fund of Rs 60,000 crore to facilitate raising requisite funds for the PMAY.

Apart from these reforms, the Centre has also approved 65.43 lakh affordable homes for construction, of which 24.5 lakh are complete and 35.5 lakh are under construction.

Unresolved bankruptcy cases 

The government has made a key change in the Insolvency and Bankruptcy Code that has positioned homebuyers as secured creditors in insolvency proceedings against developers. However, a resolution looks far away in two of the biggest insolvency cases involving real estate developers Jaypee Infratech and Amrapali group. Buyers of Unitech and DSK Group projects are also facing similar issues.

Inputs Proptiger

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