02/01/2016
India’s real estate market in 2015 witnessed a fall in property prices, slowdown in demand, an increase in inventory pile up and disappointment among the real estate industry players.
However, the Union Cabinet’s approval of the Real Estate Bill in early December is expected to set the pace for the real estate industry in the coming year.
Here’s the quick overview of the real estate market trends of 2015:
Slowdown In Sales, Inventory Pile Up And Fall In Prices
Real estate prices have been a cause for worry since years now, with year-on-year prices rising significantly, making practically any property unviable for purchase.
However, despite this the real estate industry has been trudging on. That was, until this year. In 2015, couple the existing pressure points with a slowdown in the global economy, which slowed India down too, and you had customers postponing their buying decisions indefinitely.
The real estate industry now has an inventory pile up of 46 months in the Mumbai Metropolitan Region (MMR), an Indianproperty.com report noted in August.
ALSO READ: High prices, low demand pushes Mumbai housing inventory pile up to 46 months
The rising prices and fall in demand led to a stagnation in the industry in 2015, pushing prices down by 0.95 and 3.23% in the MMR region and Mumbai, respectively, according to an earlier dna report. The quarter-to-quarter fall is 0.99% in MMR and 1.51% in Mumbai.
Which means, if in 2014, the average cost of a 2BHK apartment was Rs 3 crore, it is Rs 2.91 crore in 2015, says Liases Foras, a real-estate research firm. In the Mumbai Metropolitan Region, the corresponding figures are Rs 1.32 crore and Rs 1.31 crore, respectively.
The firm's managing director Pankaj Kapoor had told dna that there was no significant sale in the year, and most registrations were for lease and license and lease agreements.
Real estate players also started dishing out nearly 25% discounts and easy payment offers to push inventory before the year was out.
ALSO READ: You will love this fall: Real estate prices in Mumbai are down
The aforementioned report also said that the average flat rate per square feet (sq ft) has also decreased. In 2014, it was Rs 13,020 per sq ft in MMR. It is Rs 12,896 in MMR in 2015. In Mumbai, it has plummeted from Rs 20,125 per sq ft in 2014 to Rs 19,681 in 2015.
It is likely that the lull in the market will remain for the next two years till buyers deem prices to be more affordable.
So, what does ‘Affordability’ mean in housing?
Pranay Vakil, founder and former co-chairman of global property research and brokerage firm Knight Frank India, has an interesting definition.
"The total flat cost should be equivalent to the total five-year income of a husband and wife. If it's more than that, buyers will be reluctant. That’s the scenario we are facing today," Vakil had told dna earlier this year.
Builders blame landowners
Manohar Shroff, Secretary, Maharashtra Chamber of Housing Industry, Navi Mumbai unit, said, “In Navi Mumbai, Cidco and local land owners are selling property at such high rates that developers have to jack up rates.”
"We hope the government will reduce taxes and banks will cut down interest rates. If that happens, customers will again start buying," the dna report quoted Sherawat as saying.
Raghuram Rajan plays it tough
The Reserve Bank of India governor Raghuram Rajan played tough with real estate players this year, telling them not to rely on the central bank entirely for an easy policy stance. Instead, Rajan pushed real estate players to cut rates if they want demand to pick up in the sector.
ALSO READ: Raghuram Rajan wants real estate players to reduce prices to cut stock
Seeing the rates unchanged, CREDAI, the apex body of real estate developers, had said, that the move was "very disappointing. We were hoping that there would be some relief. Rate cuts were required to spur investment in manufacturing and real estate sectors," President Getamber Anand said when asked about his views on RBI policy.
Realtors’ body NAREDCO Chairman Navin Raheja had said that the current depressed sentiments in the real estate market will continue till any reduction in interest rate happens.
ALSO READ: RBI policy desolates; realtors want rate cut to boost the industry
However, in the next bi-monthly monetary policy, the central bank slashed rates by a surprise 50 basis points, which, although was welcomed by all the stakeholders of the economy, including those of the real estate sector, did little to change things.
Relaxation Of FDI Norms In Real Estate
Looking outward for more investment in the cash-starved sector, the Government of India eased Foreign Direct Investment (FDI) norms in the construction sector by removing two major conditions related to minimum built-up area as well as capital requirement.
The real estate sector has seen a huge slowdown in the last two-three years, with the liquidity situation made worse by the demand slowdown, and a delay of up to five years in completing projects.
According to the eased norms: “Conditions of area restriction of floor area of 20,000 square metres in construction development projects and minimum capitalisation of $5 million (nearly Rs 33.12 crore) to be brought in within the period of six months of the commencement of business, have been removed,” cited the government in November.
ALSO READ: Government eases FDI norms for real estate sector
According to the government, each phase of the project will be considered as a separate project for the purpose of FDI policy.
Despite of having 100% FDI permission in townships, housing and built-up infrastructure and construction developments since 2005, the government had imposed certain conditions.
Besides, it has eased rules for foreign investors to exit and repatriate their investments. What does relaxation of FDI norms mean for foreign investors?
-- A foreign investor will be permitted to exit and repatriate foreign investment before the completion of project under automatic route, provided that a lock-in-period of three years, calculated with reference to each tranche of foreign investment has been completed
-- The transfer of stake from one non-resident to another non-resident without repatriation of investment will neither be subject to any lock-in-period nor to any government approval
-- The exit is permitted at any time if project or trunk infrastructure is completed before the lock-in-period
The Real Estate Bill
The Union Cabinet had approved the Real Estate (Regulation and Development) Bill, 2015, in early December, which was later sent for consideration to the Parliament, however, the bill, along with other crucial ones, were not passed in the already-concluded Winter Session.
ALSO READ: All you need to know about proposed Real Estate Bill 2015
The proposed bill calls for setting up a regulatory authority for the real estate sectors with appointees in each state or union territory; putting 70% of the amount raised for construction into an escrow account; equal interest payout for buyers and builders, which currently is in the favour of builders; a jail term of three years or penalty, or both, in case of builders if they violate the orders of the appellate tribunals.
The bill was largely rejected by stakeholders, with the Credai (Noida) President Getambar Anand calling it a sword on their heads. "A new sword by the name real estate regulatory act is hanging over our heads," he said, at an event in Ahmedabad recently.
