Home >Opinion >Online-views >Opinion | Why this year was a difficult one for real estate

The year 2018 was uncomfortable for Indian real estate as it underwent the maturing process which had begun in 2017 with the Real Estate (Regulation and Development) Act 2016 (RERA) and the goods and services tax (GST). Though introduced in the previous year, these regulatory changes had their maximum impact in 2019. While the housing market was severely hit by the combined effect of demonetisation, RERA and GST, it began recovering in 2018, albeit gradually. Anarock data for 2017 indicates that while 2017 saw a huge decline of 70% in project launches, 2018 saw new launches pick up by over 30% as against 2017.

Similarly, while 2017 saw housing sales decline by 13% over 2016, 2018 brought a notable quarter-on-quarter sales growth with as many as 178,470 homes finding purchasers in the first three quarters of the year in seven top Indian cities—Bengaluru, National Capital Region, Mumbai Metropolitan Region, Chennai, Kolkata, Pune and Hyderabad. While Q4 sales numbers are not yet in, if we extrapolate Q4 housing sales from the preceding quarters, 2018 will have witnessed a rise of 15% in overall housing sales when compared to the preceding year. In 2018, the housing sector’s most vibrant segment was affordable housing.

The problem of stalled housing projects continued to plague the market and acted as a stumbling block to future growth. Definitely, this issue needs to be strongly addressed in 2019 and the incumbent government is actively pursuing solutions. What progress is made on the ground remains to be seen.

In spite of a slew of policy announcements, data indicates that the government’s much-touted PMAY scheme saw dismal progress in 2018. In 2015, the government had set its sights on deploying as many as 1 crore urban homes in less than 10 years. The available data, however, indicates that a mere 15% new low-income group (LIG)/economic weaker section (EWS) homes have been built so far under PMAY.

The liquidity crunch was a major hurdle for the housing sector in 2018. After the IL&FS default, the NBFC crisis hit an already wounded market towards the end of the year, putting developers into even greater difficulty. The banking system had more or less frozen lending to real estate because of mounting NPAs (non-performing assets) in the sector, and NBFCs and HFCs were the go-to funding options for cash-strapped developers.

The disbursal of developer loans slowed down significantly in 2018, and the NBFC crisis still looms over the sector in 2019. This crisis needs to be resolved soon, or else the residential real estate market’s growth prospects will remain compromised at least in the first half of 2019.

Housing prices did not show any significant movement in 2018, but the commercial office sector fared even better and remained buoyant in all the seven main cities in 2018. Anarock data indicates that overall office space absorption in these cities, again extrapolating Q4 2018 numbers would have risen by almost 19% over 2017. Clearly, the government’s initiatives are driving business growth in the country.

The top-performing market for office space absorption in 2018 was clearly Bengaluru, which witnessed an annual increase of 37% in commercial real estate absorption in 2018 over 2017. In comparison, MMR saw only a 4% rise in absorption.

A number of variables will come into play in 2019. Liquidity deficit in the sector will continue in the first half of the year and new housing project launches are likely to remain slow. There will be increasing focus on affordable housing by large developers who had previously shunned this segment. We expect consolidation to continue in 2019, not only among real estate developers but also in the beleaguered NBFC industry.

We will see an increased focus on rental and managed living such as co-living models in 2019. Similarly, segments like co-working, senior living and student housing will see increased traction. Ready-to-move-in homes with completion certificates will see the most traction. We do not expect much, if any, growth in housing prices in 2019, except in select projects by reputed developers.

Anuj Puri is chairman, Anarock Property Consultants

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