Real Estate has always been a very interesting subject and why not. There are so many ancillary businesses dependent on Real Estate. Government bodies, financial institutions all are associated with Real Estate and hence the stakes are high.
After the financial crisis of 2008, the real estate sector was grappling and the residential sector had more or less recovered. The commercial real estate remained under pressure until this day as most of the developers dropped their plans of developing a commercial building and few even stopped the construction midway and changed the user. The sector was somehow on the recovery path when from November 2016 to July 2017, the sector suffered 3 more setbacks i.e. Demonetization, RERA & GST. The RERA and the GST were welcomed by the industry stalwarts and veterans; however many had different views on the timing when this was introduced. Any new law / tax does take a while to fall in place and needs to be given time too. Now things are falling in place and everyone is hoping for a positive outlook for this sector.
A technical study conducted by the government in 2011 estimated housing shortage at 18.76 million units in urban areas, of which 96% pertained EWS and LIG and I am sure that this gap has further widened by now. Due to the overall economic scenario, despite the fact that there is a demand, no one is taking bigger bet. This is seen more in luxury segment where the ticket size is 4 Crores and above. People prefer to rent the properties which work out to 2% or 3% of the cost of property till they are assured of some certainty in the external factors. Due to this, the rentals have appreciated in most of the micro markets. The ticket size of residential between 1.5 Crores to 2.5 Crores is the hero. This is been moving consistently and which is why many new launches have happened in the western suburbs’ northwards of Andheri and in the central suburbs’ southwards of Ghatkopar.
Commercial Realty has also witnessed momentum since last few years. There hasn’t been much change in the price points but transactions have started happening. Since, no new organized commercial supply has hit the
market, most of the A Grade supply has been absorbed in the micro markets of Lower Parel, Bandra-Kurla Complex, Andheri etc. There was a time when pre-leased office assets or alternately known as income generating office assets were most sought after by investors due to their double-digit yield but today the yields have dropped below 8%. As such most of the investors are turning away from commercial real estate and looking at other avenues to park their surplus. REITS (Real Estate Investment Trusts) which has been under a lot of discussions in India for couple of years will be a reality soon. Due to its organized structure this will give opportunity to even small investors to invest in Real Estate which otherwise was forte of few.
With the present initiatives/ acts taken/implemented by the ruling government, real estate is being regularized and certainty is being brought into the sector. The business hasn’t changed but the way of doing business is changing. This has brought in a lot of transparency for the end users and has developed confidence in them to buy. Due to the steps taken by the ruling government the investors are out of the game. Due to which the supply was always controlled in order to keep the pricing high always. Now in absence of investors, the pricing is coming to realistic levels to enable end users afford it. However, there is always some scope for further betterment. In my opinion now is a good time to buy.
REITS (Real Estate Investment Trusts) which has been under a lot of discussions in India for couple of years will be a reality soon. Due to its organized structure this will give opportunity to even small investors to invest in Real Estate which otherwise was forte of few
Developers are more realistic and the buyers can laugh their way out with a deal. The resale market though needs some learning as the gap between the resale properties versus first sale properties has narrowed. Re-sellers are holding on to their unreasonable pricing expectations just because most of the projects launched will get delivered within 3 to 5 years from now. While there are lot of buyers who prefer ready inventory as against under booking but this unrealistic expectation of re-sellers is holding them back.
Another initiative of the present government to provide housing for all till 2022, have introduced the scheme, Pradhan Mantri AwasYojana (PMAY). Through this scheme affordable housing will be provided to the urban poor. The scheme will target to build 20 mln affordable houses for this segment. In order to make this mission a success, incentives are being offered to developers to encourage them to take up affordable housing. This has already started showing results as some reputed developers have already launched affordable housing project in the outskirts of Mumbai.
In my opinion, this is also a good time to invest in commercial provided one has a minimum 5-year horizon. Commercial is the only asset class which can give you a yield above 7% as against the residential asset class which can give you not over 3%. I think within 5 years a combination of capital value appreciation and rental yield should be able to give a double digit return. It is however advised to seek advice of an expert before you invest in any instrument.