Era of Indian Real Estate Rejuvenation? Why We Can Be Optimistic…

The last few months have been among the most eventful in Indian Real Estate sector. It began with the rollout of Real Estate (Regulations and Development) Act, popularly referred to as the RERA Act of 2016, across the country. Each state government has been involved ever since in the implementation of this Act in its own domain. Maharashtra has been the most proactive state thus far in the rigorous implementation of RERA. Hundreds of projects were registered under Maharashtra RERA as the process built to a fever pitch as the deadline of July 31st loomed. Officials with MahaRERA, particularly, have been supportive, progressive and proactive in ensuring the regulation is implemented with minimum hassle.

While this humongous process was underway, the Indian government implemented into law the progressive GST or Goods and Services Tax. The quick succession of these two laws means most real estate developers across India are busy taking stock of the impact on their operations, delivery of projects and customers and ultimately their sales and profit bottom lines.

A number of developers view these two landmark Acts positively, as they are set to usher in a more transparent and organized business environment within real estate as well as the larger industry. This augurs well for both the developers as well as the customers or home buyers.

Mumbai Skyline, Lower Parel: Indian Real Estate
Mumbai Skyline, Lower Parel

As a result, Indian real estate has never looked more attractive as a sector to home buyers and investors alike. A number of factors over this year, in addition to the latest Acts, have contributed in varying degrees to give the sector a positive outlook. Let’s take a look at some of these:

  • Reduction in home loan rates – The last one year has seen a consistent reduction in home loan rates making housing finance more accessible to a wider consumer base. Home loans are now available at a multi-year low of 8.50% to 8.25% based on the lending institution. With the RBI cutting the repo rate, banks are able to pass on the benefit to consumers with lower interest rates on home loans. As a result, more Indians are sensing an opportunity to purchase their first homes or an additional home.
  • Resumption In FDI flows – Prime Minister Narendra Modi promised greater ease of doing business in India. Changes in FDI norms was one of the big initiatives along these lines. Foreign Direct Investment in Indian real estate has long been a major challenge. Under the new FDI norms, many of these will be smoothed, paving the way for greater participation by foreign investors and funds, in the growth of construction in Indian realty. The new norms include clarity in entry and exit of foreign investors, transfer of ownership and stake as well as removal of lock-in period of investment.

    While these reforms certainly make investing in Indian real estate attractive, simultaneous structural reforms such as RERA and GST have added to the allure of a more liberalized FDI framework. The PM has been reaching out to NRIs during his numerous overseas trips. Since NRIs are among the biggest participants in FDI in real estate, this reform will imbue them with more confidence in the sector and enhance their quality financial participation.

  • Housing for All: PMAY & CLSS – Mr. Narendra Modi has a bold and ambitious vision to ensure every Indian owns a home by 2022, with affordable housing being a key focus area of the current government. Pradhan Mantri Awas Yojana and Credit Linked Subsidy Scheme are the two enablers towards this end launched under the ‘Housing for All’ scheme.
Raunak Group's Raunak Heights is an example of affordable housing: Indian Real Estate
Raunak Group’s Raunak Heights is an example of affordable housing

These two schemes will provide financial assistance to homebuyers from Lower Income Group (LIG) and Economically Weaker Sections (EWS) through lending institutions in the form of an interest subsidy on home loans. The scope of the scheme has been widened further to include citizens from the Middle Income Group as well such as those earning above Rs 6 lakh and up to Rs 18 lakh per annum. This ensures a wide population of new home buyers and a promising market for affordable housing.

  • Real Estate (Regulation & Development) Act or RERA – Seen as a watershed moment in the history of Indian real estate, RERA is expected to bring transparency and competitiveness in the real estate sector, which in turn will benefit both the customers and the developers. Only reputed players are expected to survive the increased scrutiny in a post-RERA business environment.
  • Enabling Infrastructure Projects – India is experiencing unprecedented growth, and infrastructure is a vital part of this growth. Various projects across the country are being undertaken. However, some of the most ambitious projects are being planned and executed in Mumbai. These include the DMIC – Delhi Mumbai Industrial Corridor, the new Navi Mumbai Airport, the 30 km coastal road connecting Marine Lines in South Mumbai to suburban Kandivali in the north, the Trans-Harbour Link Road from Sewri to Nhava Sheva port and additional metro lines across various parts of the city.
Indian real estate: Indian and Japanese PMs at the laying of the foundation stone: Indian Real Estate
Indian and Japanese PMs at the laying of the foundation stone (Source: The Guardian)

The newly inaugurated Bullet Train project connecting Mumbai to Ahmedabad as well as the numerous industrial centers of Vapi, Surat, Vadodara and more along the route, provide fresh impetus to industrial, real estate and employment growth. 

These highly anticipated infrastructural projects are expected to provide new impetus to the financial capital of the country – improving connectivity, decongesting existing transport infrastructure and enhancing the standard of living and make investing in real estate that much more attractive.

Indian Real Estate has long been the dark horse of the Indian economy despite being the better contributor to GDP as well as providing higher returns on investment as compared to other asset classes. Policy reforms, long-awaited regulations, and highly anticipated infrastructural projects will inject some much-needed shine to the sector.

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