Last year for 2019
On the residential property side, Ready to move in properties was the flavor of the year in 2019.
Storage, shared work spaces, living together and accommodation for students were the new interests of the developers throughout the year 2019.
The absorption of residential sales volume was not very encouraging, it was less than 5%. Affordable housing was the winner, as it found support from government policies and regulations. There were more releases in this space.
Commercial Property experienced a lot of traction in 2019 and lease volumes also rebounded substantially and lease rents also showed appreciation. National and international funds and investors showed great interest in placing money in leased assets, Private Equity invested about 5 billion dollars, most of which were actually commercial.
In April 2019, the first REIT (Real Estate Investment Trust) launched by the Embassy Group together with Black Stone was presented and investors were generously rewarded.
Outlook for 2020
Last year, the Government made an additional effort in formulating laws and policies to restore consumer confidence, in 2020 the developer will have to adapt organized and more professional ways of marketing and selling their products and gain consumer confidence on the basis of delivery and quality.
My general assumption about the real estate market in 2020:
Taking into account the current scenario, the possibilities are:
1. RBI reduced the interest rate to 5.15% (which resulted in a reduction in the housing loan rate), GST was rationalized to 1% for affordable housing, income tax incentives for first-time homebuyers, Stress fund provision (Rs 25 billion) for stuck projects announced in 2019 will have a positive impact on the real estate industry.
2. Commercial real estate will definitely do well and we will see a growth in absorption in this segment. Lease volumes will increase even more. Rentals in this space will see an appreciation, however, these will be city specific. We will see more developers going the way REIT. Foreign investors will invest more money in commercial real estate in India in 2020.
3. Residential sales will remain silent during the first half of the year 2020. There will be further consolidation. Prices will mostly be flat and absorption will occur more in the affordable segment in Properties Ready to Move in. The consumer will buy homes for own use in central locations with all the established social infrastructure. There may be a noticeable change in buyer behavior where the consumer will prefer to buy accommodation, not size (2 rooms in 900 square feet v/s 2 rooms in 1100 square feet, 3 rooms in 1400 square feet v/s 3 rooms in 1800 feet squares will be the option for the consumer)
4. Storage: GST, e-commerce, modern road infrastructure, air and water will further boost the use of warehouses. The investment will fall from foreign and national institutions in this segment for at least a decade, this will be the space to observe real estate investors.
5. Student housing will accelerate the pace.
6. Coexistence and joint work will maintain the interest of investors, however, the strength of these business models will be determined in 3-5 years. I don't think they are the best long-term real estate investment ideas, however, it could be an option for short-term goals.
Some problems I could see continue in 2020:
1. There are still many doubts and fears in the consumer's mind regarding the economy (GDP), unemployment and global factors such as trade war between major economies, conflict between nations, etc., that hinder the sale .
2. Liquidity will continue to be a problem in 2020. While the stressed fund created by the government will help stagnant projects (provided that the regulator - the administrator of the SBI Cap fund can be deployed on time) to move towards completion and contribute money but the process itself takes a long time and, therefore, the solution to the current crisis is not immediate.
In my opinion, there are 2 definitive solutions to move the market towards growth:
1. In the 2020 budget, the government can rationalize Direct Taxes (Income Tax) so that the consumer can get more money to invest in his pocket, this will feed consumption and, therefore, directly help increase sales of Real Estate.
2. The developer will have to be created and innovated enough to give confidence in the mind of the consumer that will help him make the decision and, therefore, increase sales.
The solution is SALE and nothing else.
The real estate industry is the second largest contributor to GDP and a large employment generator. It provides business to more than 200 auxiliary industries and, therefore, is an important industry for the government to move the economy.
Overall, I am cautiously optimistic about the growth of the real estate industry in the year 2020.
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