Prolonged woes of real estate sector yield place to optimism

The learnings from the past show project delays are the single biggest reason that led to the trust deficit we have seen in the past, a factor largely responsible for the creation of the passive buyer.

The prolonged woes of the real sector appear to be ending with the impact of coronavirus pandemic abating, homebuyers coming to the market place and developers in greater numbers going in for new project launches.

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Unlike the start of the 2010 decade when property prices skyrocketed, interest rates soared to as high as 11 per cent and circle rates and stamp duty rates were kept at elevated levels, things have improved a lot to the benefit of the real estate sector.

The difficult real estate matrix, which willy-nilly militated against the sector, is now over with the whole focus shifting on affordable housing, aided by the support from the Central government; continued accommodative stance by RBI in terms of home loan interest rates at multi decade low; reduction in stamp duty and circle rates by state governments and sweetening of deal by developers. Tax and legal reforms have also ensured that buyers pay less in taxes on purchase of property and enjoy effective legal security against project delays. Combining all factors, affordability to own a home is presently at its best in the past two decades.

In the absence of these crucial pain points, the end-users have shown the willingness to return to the market, also prompted by the fact that other assets are more vulnerable in the face of an emergency or crisis situation like the coronavirus pandemic.

Maharashtra stands as the best example of this where property registrations have seen a spike, despite the second wave of the coronavirus pandemic, after the state announced a temporary reduction in stamp duty amid banks like Kotak Mahindra bringing the home loan interest rate to as low as 6.60%.

According to a Housing.com-NAREDCO survey unveiled in July this year, real estate is the preferred mode of investment for 43% of respondents while 20% preferred stocks, 19% fixed deposit and 18% gold. The survey also pointed out that the economic and income outlook for the coming six months is more optimistic as compared to the first half of 2020.

The intent of the buyer to take the plunge is also reflected in the online property search volumes. Housing.com’s IRIS (Indian residential index for online search) also revealed that online searches for residential properties picked up pace in June 2021 over the previous two months, with Delhi-NCR getting the highest traction.

There has been a steady reduction observed in unsold inventory in the last one year post the first lockdown in 2020. As per the recent report by our group company PropTiger.com, Real Insight report for April-June 2021, the unsold stock has come down to 7,11,215 as compared to 8,46,460 last year, a reduction of close to 15%.

In light of the above facts, it is safe to say, the time is ripe for the real estate sector to make that giant leap towards recovery by making concerted efforts in that direction. While lockdown situations may make it difficult to meet the project completion deadlines (state RERAs have begun to announce extensions on completion deadlines, too), developers must make every effort to deliver projects within the time they promise.

The learnings from the past show project delays are the single biggest reason that led to the trust deficit we have seen in the past, a factor largely responsible for the creation of the passive buyer. The government has been making concrete efforts to increase funding to support the sector through its SWAMIH fund and other schemes.

A lot actually depends on how well builders use this great opportunity to work in their favour in particular, and the sector in general. We have already seen profit margins of established players in the sector rising despite the pandemic making the survival of lax players difficult.

Coming back to the government support, one would be right in saying that even though it has been consistently launching support measures, the government needs to be more proactive towards rescuing a sector that employs the highest number of people in India after agriculture.

Reducing GST for luxury housing, bringing down duties of building materials such as cement and steel would be a great step towards that direction. Some states have yet to announce any reduction in stamp duty or circle rates despite all the nudging from the Centre. These states would do themselves and the sector a great favour by paying attention to the central direction. We can once again quote the Maharashtra example here. All in all, real estate recovery can be achieved much sooner than we thought, provided we are willing to go the extra mile.

(By Amit Masaldan, Business Head, Housing.com)