Amidst the slowdown in the real estate sector, we look at the key areas that developers are likely to focus on in the year 2020 and the challenges that still lie ahead
2019 was a relatively challenging year for Indian real estate, with the sector experiencing a slowdown. Nevertheless, this slowdown made Indian developers aware of where they stand and the shortcomings responsible for the same. Consequently, industry experts expect developers to adapt to numerous changes, in terms of preference, demographics, technology and policies, in 2020, in a bid to boost buyer sentiments and the sale of affordable housing.
“Even with a slowdown in the sector, sales showed some signs of improvement in Q3 and Q4 of FY19, because of the readjustments done by developers in their product offering, based on the understanding of consumer demands. For example, new-age developments are more suitable for millennials, who are actually the target group of many affordable housing developers,” says Dinesh Doshi, managing committee member, CREDAI MCHI, Raigad.
Top realty trends in 2020
Real estate to be end-user driven
The market is becoming increasingly end-user driven. “While the number of real estate investors is already low, this segment is further dwindling. In the coming year, it looks like almost all the demand will come from end-users, with a supply of products primarily targeted towards them,” says Mayur Shah, managing director, Marathon Realty.
Demand for compact housing, co-working and commercial spaces to rise
The demand for ‘compact housing’ is likely to witness a big rise, across the country. “The ‘right size, right price’ approach, has forced most of the top real estate developers to shift their focus away from premium and luxury projects and instead, focus on the affordable segment. Across different areas, homes that are priced right, have the potential to get good response from consumers. Developers will look to address this challenge, going forward,” adds Shah. The healthy demand for co-working spaces that was witnessed in 2019, is likely to continue in 2020. The growth of the commercial real estate segment, which is attracting foreign investments, will also help the economy to improve.
Heavy dependence on technology
According to Sanjay Daga, COO, Runwal Developers, new-age customers rely heavily on technology and social media, as they enter the housing market. “Thus, it will become imperative for developers to adopt technology and leverage it, to engage with customers, to enhance experience at every touchpoint and to build a positive perception about the sector. Adoption of technology will also enhance efficiency, quality and transparency, thereby, transforming the sector,” he explains.
Challenges facing real estate in 2020
The industry is also looking for backing from the government, to overcome some challenges and to emerge from the slowdown. While the government has taken several steps so far, sustained reforms in several key areas are necessary.
Industry status and single-window clearances
The real estate sector has a strong correlation with India’s GDP. Although the current government has introduced initiatives such as the Pradhan Mantri Awas Yojana (PMAY) and the Smart Cities mission to drive growth, the economic slowdown has put the sector under stress. Awarding industry status to real estate, will help the developers to raise funds at lower rates and reduce the cost of capital. Developers also continue to complain that the absence of a single-window clearance system, results in project delays.
Funding from banks
While bank funding made available to developers in 2018 was already less, Shah points out that in 2019, it dipped to an abysmal 37%.
The government recently announced a real estate stress fund bailout worth Rs 25,000 crores. “This amount is miniscule, compared to the financial difficulties that developers are facing. A further financial bailout mechanism or liquidity infusion, will address the issue,” maintains Daga.
GST burden and input tax credits
Easing the burden of the Goods and Services Tax (GST) and getting faster clearances for projects, will boost the real estate industry. Developers also complain that the withdrawal of the input tax credit (ITC) is affecting those in the affordable housing segment, as construction costs are high in this segment. Reforms in taxation, could help the ailing sector.
High stamp duty charges
The stamp duty charges on property registration are significantly high, as compared to other economies in the world. If reduced, it will help home buyers significantly.
Home loan interest rates
Home loan interest rates in India average around 8%-9%, while globally, it is closer to 3%-4%, which again is a concern, says Daga.