Anuj Puri – Page 23

Real Estate – FinMin To The Rescue?

Anuj Puri, Chairman – ANAROCK Property Consultants

Finance Minister, Piyush Goyal’s meeting with top industry stakeholders shows clear intent to salvage the sector

Despite the many interventions by the Government directly or indirectly benefiting the real estate sector in recent times, many pressing problems besetting this industry have remained unaddressed. A major one among these is the issue of stalled projects, which has been at the core of buyers’ discontent.

Taking cognizance of this and several other issues, officiating finance minister Piyush Goyal held a meeting with the top bankers and industry stakeholders to discuss measures that can be taken to bring the industry back on track.

After RERA, this was potentially the most direct and straightforward intervention move that the Government has taken on behalf of the struggling real estate sector.

The item of highest interest on the meeting agenda was the proposal to rope in the National Buildings Construction Corporation (NBCC) to complete stalled projects, a predominant burden of which is NCR.

What is at stake?

Even if 50% of the stalled projects are picked up by NBCC,

by Anuj Puri

Anuj Puri, Chairman – ANAROCK Property Consultants

In any discussion about affordable housing in India today, the fact that a lot of such housing is actually lying vacant is bound to crop up.

One may point out that, especially with the Government’s avowed intention of providing Housing for All by 2022, this supply should logically go towards bridging the affordable housing gap.

However, it is obviously not that simple or it would already have happened. A lot of this budget housing inventory is lying vacant for good reasons.

Before we get into the reason, let’s take a quick look at the numbers. Around 237,000 units across top 7 cities belonging to the affordable housing segment (units priced less than INR 40 lakh) were unsold as of Q2 CY 2018.

This number pertains only to the unsold units of organized private developers and does not include Government housing schemes, which essentially means that the number would go further northwards if those are included.

Given the unrelenting requirements for urban budget housing, inventory that has been created in the major cities by seasoned organized players who know what they’re doing will eventually get absorbed.

by Anuj Puri

Affordable Housing Keeps the Momentum Going

Anuj Puri, Chairman – ANAROCK Property Consultants

Unsold inventory down 2% from 7.11 lakh units in Q1 2018 to 7.0 lakh units in Q2 2018
Unsold inventory declined 10% from 7.7 lakh units in Q4 2017

There has been a whopping 50% jump in overall new housing launches in Q2 2018 over the preceding quarter, with the maximum supply in the affordable segment (< ₹ 40 lakh).

Interestingly, the affordable housing supply increased by 100% in Q2 2018 over Q1 2018, and this supply has led the overall growth.

On the sales front too, housing sales across the top 7 cities of India also rose by 24% compared to Q1 2018, indicating that hitherto abstaining home buyers are back on the market.

Developers are working hard on clearing unsold inventory with attractive schemes, freebies and discounts. Moreover, the positive impact of the policy reforms including RERA and GST have begun to bear fruit.

by Anuj Puri

Anuj Puri, Chairman – ANAROCK Property Consultants

Real estate development may seem to be little more than laying down brick and mortar to develop a massive concrete structure. It may seem to be a business that anyone can and probably should enter, especially considering the massive unmet housing demand in the India.

Nothing could be further from the truth – real estate development is a tough business. And though the entry barriers have reduced over time, the complexities of the real estate business have increased manifold.

As of now, developers across the country are grappling with a massive unsold inventory of more than 7 lakh units being unsold in the top 7 cities alone. How does a real estate developer make his mark in today’s dynamic property market where everyone is struggling to sell?

The 7 Hallmarks of Success:

Understanding that it’s still always about location:

Location is the most critical success component for any real estate development. Even the humblest of small-sized projects with the barest minimum of facilities and amenities will find takers if they are in locations with sufficient social infrastructure and good multi-nodal transport connectivity.

by Anuj Puri

Anuj Puri, Chairman – ANAROCK Property Consultants

The landmark reform of Goods & Services Tax (GST) was, in many ways, the final bullet shot to the Indian real estate sector in July 2017. The industry was already reeling under the immediate impact of DeMo and RERA.

GST was touted to be a gamechanger for all sectors including real estate. It was largely anticipated that GST will provide a much-needed respite to homebuyers by way of reduced property prices. Unfortunately, with GST completing one year, it emerges that these expectations were unrealistic.

While the tax-on-tax has been eliminated with the advent of GST, the overall outgo from homebuyers’ pockets seems to have increased by as much as 8% across cities. This ultimately reduces the demand in real estate.

Also, the higher tax rate on purchasing a home – an already staggering expense for most Indians – has kept many home buyers and investors off the market.

Let’s understand this better.

In real time, the cost of raw materials under the GST regime underwent minor changes – cement, paints and plasters were taxed at 28%,

by Anuj Puri

Anuj Puri, Chairman – ANAROCK Property Consultants

Home loans are paid in instalments which are commonly known as Equated Monthly Instalments (EMI). These are fixed amount which is expected to be paid by the borrower to the bank every month as a part of loan repayment.

A bank considers a home loan to be in default when the borrower fails to make a payment and is behind by 90 days. In such a case, the borrower would have missed 3 payments of EMI.

When the home loan is in default, banks do not seize the assets of the borrowers immediately. They send a notice to the borrower stating that the EMI payment has been missed and strict action will be taken in this regard.

Banks are ready to understand the various reasons behind non-payment of the EMIs, which might include financial crisis, accident, etc. if the borrower approaches the bank with an explanation.

Once the reason is conveyed by the borrower or is otherwise evident to the lender, the bank restructures the EMI and extends the loan tenure on the request of the borrower.

by Anuj Puri

Anuj Puri, Chairman – ANAROCK Property Consultants

Coworking spaces have redefined the work culture globally and India is one of the most fertile grounds for the growth of this new work environment option.

From simple workplace with ungainly desks and chairs to much better-utilized spaces, automation and even added recreational facilities, office space structures in India have indeed changed a lot.

One of the offshoots of this evolutionary process is the rise of workplaces that can be easily accessed anytime and from anywhere – a plug-and-play concept of office spaces.

In short, coworking or shared office spaces.

Buoyed by the Central Government’s efforts to create a viable eco-system for young entrepreneurs, India is witnessing the mushrooming of multiple start-ups and SMEs across the country. Such businesses are increasingly focusing on co-working spaces.

These shared spaces are often in prime locations and provide a perfect platform for growth-seeking start-ups.
Moreover, they come at significantly lower costs than traditional office formats
They offer more flexibility greater flexibility to both employees and employers, and
They do not require a massive fixed capital investment.

by Anuj Puri

Anuj Puri, Chairman – ANAROCK Property Consultants

The housing ministry’s decision to tweak the eligibility criteria for MIG-I and MIG-II home buyers for houses eligible for interest benefit under PMAY is a phenomenal move to boost sales of large-sized apartments.

As per the revised norms, MIG-I category home buyers with household income between ₹ 6 lakh – ₹ 12 lakh are now eligible for a subsidy for homes up to carpet area of 160 sq. m. from the earlier 120 sq. m.

Similarly, MIG-II category home buyers with household income between ₹ 12 lakh – ₹ 18 lakh are also eligible for a subsidy for homes with a carpet area of up to 200 sq. m. from the earlier it was 150 sq. m.

This change will have a significant impact on home sales in tier II and tier III cities where the land costs and therefore capital values of properties are low and larger apartments are within the reach of such buyers.

The timing of this increase in carpet area eligibility norms is perfect, as the RBI recently decided to revise the housing loan limits for Priority Sector Lending (PSL).

by Anuj Puri

Anuj Puri, Chairman – ANAROCK Property Consultants

With the implementation of accounting standard – IND AS 115, real estate developers will have to do away with the existing percentage completion method and adopt project completion method.

This is not a mere accounting change as it will have a severe impact on the ways & means in which the real estate developers run business, raise funds, price and sell projects.

Under the percentage completion method (old accounting standard), advance payments received from a home buyer towards an under construction flat were considered as revenue and added to the company’s turnover and net income generated from such projects were treated as profits.

However, under the project completion method (new accounting standard), advance payments received from a home buyer towards an under construction flat will have to be treated as loans and not income from sales. This will bear the following impact:

Real estate stock prices may witness a significant correction – stock prices are a function of the company’s profitability and leverage. With changes in the accounting standards, the price-to-book value ratio will change and will bear an impact on the current stock prices.

by Anuj Puri

Anuj Puri, Chairman – ANAROCK Property Consultants

When it comes to Indian real estate, the topic of NRI investments is pretty much an evergreen one. The fact that Indian developers had, in the past, launched and marketed projects with an almost exclusive eye on NRI customers is certainly no secret.

There were many reasons for this, but the primary one was that NRIs – especially NRIs based in the Gulf and the US – were seen as cash cows with more money than sense.

Time has proved this theory erroneous. NRIs are among the savviest property investors on the Indian market today. This is amply demonstrated by how adroitly they have gauged the new investment trends on the Indian real estate market.

For a long time, the returns on investments that NRIs could get on residential assets were extremely rewarding, considering the significant capital appreciation whilst the rental yields have always been low.

However, during the last couple of years, the market slowdown resulted in capital appreciation on residential assets no longer being as per NRI investors’ expectations.

In the current market conditions,

Real Estate – FinMin To The Rescue?

Vacant Affordable Housing – Causes (and Solutions?)

New Housing Launches Up By 50% In Q2 2018

7 Ways To Succeed Or Fail In Real Estate Development

GST Enters Year 2 – Real Estate Still Flummoxed

How To Avoid Defaulting On A Home Loan

Coworking Space – A Threat To Conventional Offices?

Revised Flat Size Norms a Major Demand Boost for Larger Homes in Tier 2/3 Cities

Change In Accounting Standards – Impact On Real Estate

The Changing NRI Real Estate Investor Landscape