Connect with us

Industry

2017 In Retrospect: Realty faces slowdown, up for recovery post RERA

Published

on

Real Estate Sector
Under-construction skyscrapers. (File Photo: IANS)

By Bappaditya Chatterjee

Kolkata : The real estate sector, which witnessed a slew of policy measures through the year, experienced a market slowdown but the affordable segment emerged as its growth driver, say property consultants and developers.

The policy reforms, however, promise to make residential real estate dealings more transparent than ever before and the market is expected to see at least a partial recovery in 2018 on the back of revived confidence of home buyers, fewer new launches, improving sales and declining unsold units.

The Centre’s surprise demonetisation announcement late last year was a “real shocker” for the sector. But, simultaneously, it helped the sector to resist unaccounted funds from finding their way into the secondary and even primary sales segments as well as the luxury housing section.

Meanwhile, the Real Estate (Regulation and Development) Act (RERA) was rolled out to improve financial discipline, boost market transparency and give consumers confidence and a clear legal choice for dealing with errant developers and brokers. The Goods and Services Tax (GST) was introduced to improve taxation transparency and the Benami Properties Act got further amended to make it more effective in curbing anonymous real estate transactions and ownership.

“There were reforms galore which literally altered the DNA of the Indian real estate business, focusing on eliminating black money and improving market transparency so as to make the country’s residential real estate a better place for consumers and investors,” Anarock Property Consultants’ Chairman Anuj Puri told IANS.

Real Estate Sector

Greater Noida: Under-construction skyscrapers in Greater Noida. (Photo: IANS)

National Real Estate Development Council Vice Chairman Parveen Jain said all stakeholders adopted a wait and watch policy following the note ban and introduction of RERA and GST.

“This resulted in a somewhat slowdown in the sector as everyone was trying to understand the after-effects of demonetisation and the effects of RERA and GST. No one is willing to venture into new deals until and unless things settle down,” Jain told IANS.

GST, applicable to the purchase of homes in under-construction projects, prompted home buyers to either buy completed projects or hold back their purchase decisions. Also, developers halted sales in projects not registered under RERA across major cities, JLL India CEO and Country Head Ramesh Nair said.

“These factors led to a quarterly sales decline in five of the top seven cities to an all-time low of 4.8 per cent in the third quarter of 2017,” Nair told IANS.

Residential launches up to the third quarter of 2017 saw a decline of 33 per cent compared to the same period in 2016. Simultaneously, affordable housing saw a rise of 27 per cent in the first three quarters, mostly by taking advantage of the new government regulations and incentives for homes in that category.

“Affordable housing is an attractive proposition both for developers and consumers as the demand is huge and largely unmet. The high focus of the central government has resulted in the availability of more funding options for the developers such as ECB, FDI and debt-financing from national financial institutions at highly competitive rates,” Cushman & Wakefield’s Senior Director, Research Services, Siddhart Goel told IANS.

However, the flip side is the implementation RERA by the states. As per the central government schedule, by the end of July 2017, all states should have implemented the RERA with full functionality.

“Many states are still either in the process or don’t have requisite infrastructure. Dilutions in a few RERA rules by a some states, has also hurt buyer confidence,” Knight Frank Chief Economist Samantak Das told IANS.

According to an ICRA study, by the close of third quarter of 2017, most of the major states had notified their real estate rules and set up real estate regulatory authorities as required under the RERA Act. While new project launches have remained subdued even after RERA implementation, the developers continue to push sales in ongoing projects, with expectations of improved customer confidence in those projects which are approved by the state RERA.

However, the inclusion of land and real estate (completed properties) under the ambit of GST has been a topic that has been debated significantly and will ultimately require a political solution since land is a state subject and any such move will require the concurrence of state governments.

“Any such move could bolster the transparency and compliance of real estate transactions (especially in the secondary market) since there would be an incentive to report transactions at market price to claim full tax benefit,” said Shubham Jain, Vice President and Sector Head-Corporate Ratings, ICRA Limited.

The industry is expected to somewhat stabilise in 2018 as both real estate developers and customers become attuned to the changed regulatory scenario.

Developers are likely to take a cautious approach as far as new project launches are concerned, given the over-supply situation in various markets, along with their own stressed balance sheet positions.

The focus is likely to remain on liquidation of existing stock and reduction of the debt overhang before new projects are launched. This is already visible from the trend of decreasing quantum of absolute stock of unsold inventory available with the developers.

IANS

Analysis

A view through an infrastructure investor’s prism

Active policies to address the three issues revolving around the value, scarcity and contract enforcement that investors utilise to determine both investments and the required rate of return can help make policies useful.

Published

on

investment returns

Perspectives on infrastructure assets vary widely: While investors focus on investment returns, policymakers analyse both financial and socio-economic benefits. It would be worthwhile for policymakers to view things through an investor’s investment prism because an understanding of the critical factors that shape investment decisions will help frame better policies to expedite Indian infrastructure creation.

The “raw value” of an infrastructure project is what a potential investor evaluates first. For example, in a renewable energy wind project, the wind potential of a site is what an investor evaluates. For a transportation project, the investor evaluates the potential passenger traffic. This so-called “raw value” is a huge determinant of the financial viability of a project.

Segregating infrastructure sectors and projects by such “raw value” can help government and industry alike to work towards directing infrastructure capital more optimally. Additionally, such analysis helps in framing policies for those sectors that deliver very substantial social and economic value but are not financially viable on their own.

A robust framework that helps determine “raw value” can aid all the stakeholders, especially the government, to work with investors and multilateral trade agencies to find financing solutions for such socially and economically relevant projects. Eventually, India needs to create an information repository of sorts that provides the global investor base information and access by asset type and investment potential.

Once the “raw value” of a project is determined, an investor tries to gauge what is called its “scarcity value”. Take, for instance, transportation projects. If the transportation potential of connecting City “A” with City “B” is attractive, then is building an airport to connect the two cities the most optimal infrastructure asset? That is, in spite of the traffic potential, is an airport a “scarce” enough asset to deliver attractive returns?

The investor will gauge whether the airport is likely to face competition from a competing train network or a highway. Being cognizant of the long-dated nature of infrastructure assets is important. Hence investors will have to gauge the “scarcity value” of the asset to determine the attractiveness of the asset over the long investment horizon and, therefore, eventually decide on their willingness to invest in the asset.

It is essential for the government to find a balance between allowing investors to make returns commensurate with the risk taken and allowing the public to have access to a well-priced and high-quality infrastructure asset. The twin objectives of consistency and transparency in policy are crucial in this regard.

The government’s ability to formulate and communicate the strategy effectively regarding not just sectors but individual assets is vital. To indeed expedite infrastructure creation, granular policy across industries will be needed, more so for much-needed greenfield infrastructure projects.

Apart from “raw value” and “scarcity value”, an investor considers a third factor: The quality of the underlying contracts signed for the asset. Investors look for high-quality counter-parties with whom to sign contracts. More importantly, the government’s ability to deliver a robust legal system for contract-enforcement, as also a more efficient system for conflict-resolution, will attract more significant investments.

Lowering the risk perception for Indian infrastructure assets is essential not merely to attract more investments but also to attract investments at lower financing costs. Reducing the cost of capital is going to be a significant driver of infrastructure projects through their improved financial viability.

Another area that merits attention is the possibility of the government working even more closely with Export Credit Agencies of various countries to offer foreign exchange hedges, while “importing infrastructure investments”. Solutions that not only reduce the legal risk in investments but also partially eliminate the foreign exchange risk can help boost investments significantly.

Active policies to address the three issues revolving around the value, scarcity and contract enforcement that investors utilise to determine both investments and the required rate of return can help make policies useful.

Policy frameworks can potentially be refined using these three key factors that shape investment decisions. Most importantly, one does not need to improve concurrently on all three fronts for all infrastructure sectors; incremental improvement on one element can provide a significant fillip to infrastructure investments.

(Taponeel Mukherjee heads Development Tracks, an infrastructure advisory firm. Views expressed are personal. He can contacted at [email protected] or @Taponeel on Twitter)

Continue Reading

Business

India’s April industrial production output up 5%

Published

on

industrial production output

New Delhi, June 12: India’s industrial output rose by 4.9 per cent in April 2018 from a rise of 4.57 per cent in March, official data showed on Tuesday.

According to the data furnished by the Central Statistics Office (CSO), the corresponding growth during April 2017 stood at 3.2 per cent.

“The General Index for the month of April 2018 stands at 123, which is 4.9 percent higher as compared to the level in the month of April 2017,” CSO said in the “Quick estimates of index of Industrial Production”.

“The cumulative growth for the period April-March 2017-18 over the corresponding period of the previous year stands at 4.3 per cent.”

IANS

Continue Reading

Business

McLeod Russel sign MoU to dispose of some Assam tea gardens

The company decided to dispose of certain tea estates in Assam, namely Beesakopie, Raidang, Daimukhia, Samdang, Baghjan, Bordubi, Koomsong and Phillobari.

Published

on

McLeod Russel

Kolkata, June 5 (IANS) World’s largest tea producer McLeod Russel India on Tuesday signed an MoU with city-based M.K Shah Exports Ltd to dispose of eight tea gardens in Assam for a consideration of Rs 331 crore.

The company decided to dispose of certain tea estates in Assam, namely Beesakopie, Raidang, Daimukhia, Samdang, Baghjan, Bordubi, Koomsong and Phillobari.

“…the company has entered into a Memorandum of Understanding with M. K. Shah Exports Limited, having registered at Kolkata on June 5, 2018,” the tea producer said in a regulatory filing.

These gardens contributed Rs 192.76 crore to its turnover in the last fiscal, which was over 12 per cent of its last year’s revenue.

“The company proposes to utilise the sale proceeds in repayment of certain high interest bearing debts, for buying back company’s own shares from the shareholders of the company to the tune of Rs.100 crore…and making investment for diversification into packet tea business,” the company had said earlier.

Continue Reading

Most Popular