Great Living Engineered

2016 – The year that was, in Indian real estate

30th December 2016

As the New Year approaches, it’s time to reflect on the year that has just gone by. By any account, the year 2016 was extremely eventful, with major global and domestic events impacting the Indian economy and one of its biggest drivers, the real estate sector.

As the year dawned, sentiment was low on account of sluggish economic growth in preceding years and the real estate market reflected the same. However, optimism remained high for a revival in demand based on interest rate cuts by the Reserve Bank of India (RBI) and predictions of a good monsoon. Implementation of the Seventh Pay Commission recommendations meant that housing demand from government employees was likely to rise.

The tempests were not far, however. Many banks shied away from transmitting the interest rate cuts to customers, owing to their large proportion of bad debts. The normal monsoon, however, helped drive sentiment up for a brief period, before demonetization hit.

The first major event was the passage and adoption of the Real Estate (Regulation and Development) Act, 2016 on the 1st of May. This Act fixed responsibilities of all parties in a real estate transaction and set up a Real Estate Regulatory Authority (RERA) to regulate the sector. However, land being a State subject, it’s up to the various State governments to implement their versions of this Act. As of now, some have done so and others are in the process of doing so.

Another major change was the Goods and Services Tax (GST), India’s most ambitious indirect tax reform, the groundwork for which was laid in the monsoon session of Parliament. GST will subsume certain real estate levies such as VAT and Sales Tax, while promoting greater transparency in the sector. The GST is expected to bring down the cost of construction, though the service tax and cost of compliance are likely to go up. Its ultimate impact will be known once the final version of the bill is presented in 2017.

However, no news item captured the people’s attention as much as the sudden announcement of demonetization of old Rs. 500 and 1000 notes on 8th November, 2016. This announcement dampened demand in real estate, but could possibly bring about a cleansing of this sector, with many fly by night operators coming under the scanner. It, also, pushed banks, who were now rich with cash, to transmit some of the interest rate cuts to the home loans segment.

The sudden flooding in Bangalore in July led to the BBMP conducting a major demolition drive on illegal constructions, which had encroached upon natural water bodies. The Namma Metro saw the completion of Phase 1 and a successful trial run was carried out on Phase 2. The much-delayed Pune Metro project finally got the go-ahead in December. These infrastructural developments are likely to push demand in these cities in the coming years.

In the cities of Pune and Bangalore, real estate demand remained quite good compared to elsewhere in the country.

Looking ahead to 2017, it’s clear that the clean-up of real estate will continue, with a new law on benami properties on the way. Only established and reputed players will thrive in the new environment and home buyers too should benefit from the same. The possibility of further interest rate cuts and a resulting fall in home loan rates remains high, which should push up demand further. With more states implementing their own version of the aforementioned RERA Act, the sector should more to cleaner and transparent modes of functioning.

Arguably the most eagerly awaited event in the early part of 2017 is the Union Budget to be presented on February 1st. While one cannot say exactly what it will hold, indications are that the government is focused on rationalizing the taxation structures and making housing affordable for the common man, by providing incentives to first time home buyers. Along with an anticipated fall in interest rates, there is a distinct possibility that 2017 may see a revival in housing demand.

We at Rohan Builders are closely watching the developments in the sector and business for us remains as usual. We have always put the customer at the center of our business conduct which meant higher compliances and adherence to the set norms. We have reported healthy sales, construction activity and expansion through the year. Our footprint continues to grow in our core markets of Pune and Bangalore with us covering these cities in all direction and in the most upcoming locations. Our focus on PLUS as a design philosophy and dedicated engineering team, means we employ latest technologies and best talent in our day to day operations. Going forward, we are prepared to deal with the aforementioned requirement for affordable housing and will ensure timely delivery, utilizing best in class practices such as tunnel form construction. Thus, we as a firm look forward to the implementation of Real Estate Act and GST in the year 2017 as we believe we have been working in line with the vision of the GoI.

- Suhas Lunkad - Chairman & Managing Director, Rohan Group