For India's realty industry, the initial euphoria has died down and the high expectations have also moderated in the absence of swift relief, as the Prime Minister Narendra Modi government concludes one year in office on Tuesday. Yet, there is a strong hope of revival with sustained growth.
It's taking longer than expected for 'Achhe Din' -- or the good days promised by Modi -- to arrive for the real estate industry, which is reeling under liquidity crunch, slow sales and high unsold inventory.
This is because the government is working on a medium-to-long term strategy to revive economic growth by boosting consumption and restarting investment cycle. And it strongly believed that reform-led policies work better in the long run for the growth of real estate rather than short term booster dose.
Notwithstanding the reformist policies of the progressive and forward-looking government, the current real estate scenario is a matter of concern. Both investors and end-users are deserting the market due to high property and lending rates amidst demand-supply mismatch have a taken toll of the market.
In the Delhi National Capital Region, the biggest residential real estate market in the country, for the first time in three years, the sales have dropped more than 50 percent in the first quarter of this year.
The unsold inventory is rising sharply across the country, with Mumbai recording the highest 200,000 units, followed by NCR with 170,000 units. Going by the industry statistics, NCR, Mumbai and Bengaluru will respectively take about 54 months, 34 months and 28 months to clear the inventory.
Another worrying factor is the high debt-to-equity ratio of real estate companies which are finding it difficult to reduce debt due to high interest outgo and poor cash flows. The critical situation can be gauged from the fact that market leader DLF saw its debt rising by Rs.628 crore to Rs.20,965 crore in March quarter 2015.
But several reform initiatives undertaken by the Modi government in its first year have raised high hopes of real estate turnaround. The government is putting great emphasis on boosting foreign direct investment to overcome fund crunch. Its policy initiative to ease foreign equity rules in construction by reducing the minimum capital requirement from $10 million to $5 million and built-up area from 50,000 square metres to 20,000 square metres is meant to provide lifeline to fund-starved developers.
By clearing decks for real estate investment Trusts (REITs), the government has provided new funding option for developers and investment avenue for retail investors. There is another major initiative by way of allowing foreign investments in alternate investment funds. And in a recent twin-measure, the government has eased foreign equity norms for overseas Indians and liberalised rules for allowing offshore loans in rupee.
Further, single-window foreign equity nod and regulation of norms pertaining to foreigners and firms purchasing property in India are underway. Besides these reform measures, the government is creating policy environment that is predictable and transparent and for this measures like expeditious and timely approval processes, progressive tax regime, rationalisation of labour laws and ease of doing business are being taken.
Considering that lack of transparency and regulation is one of the biggest reasons for the turmoil in real estate triggered by credibility crisis, the government has come up with an amended Real Estate Regulation Act (RERA) Bill, 2015, making it more broad-based by bringing commercial real estate and property agents under its ambit. The bill, currently before a select committee of parliament, is expected to be passed in the upcoming monsoon session of parliament.
While charting the reform path, the government is fully conscious of the fact that cash transactions and the circulation of black money in property transactions has been the bane of real estate. So, in order to weed out black money in real estate, the government is making PAN and Aadhaar card numbers mandatory for registering property valued at Rs.100,000 or more. It has drastically lowered the limit to check under valuation of property deals.
The Benami Transaction Bill, 2015 will also come handy to check the circulation of black money in real estate. The two major policy initiatives of developing 100 smart cities and "Housing for All by 2022" are quite significant, though not much headway is being made on spelling out how the massive funding required for these initiatives will be arranged.
Politics has taken toll of the most crucial reform initiative -- Land Acquisition Bill, with the opposition dubbing the revised bill introduced by the Modi government as anti-farmer. It has been stalled and currently before the joint committee of parliament.
But considering that the success of the government's two flagship programmes - "Make in India" and "100 Smart Cities" - depend on the land bill, it is working hard to achieve a consensus by balancing the interests of farmers and industry. And in view of the the strong will demonstrated by the government, the bill is expected to be passed in the joint session of parliament which will prove to be a game changer for the real estate sector.
All these reforms and policy initiatives which bode well for the real estate sector have already created a positive sentiment. Though residential sector is still under strain and may take few more quarters to recover, the commercial office segment has already shown the signs of turnaround with deals worth $1.84 billion in 2014 and 33 million square feet of Grade A office space across seven top cities getting absorbed, registering 11 percent year-on-year growth.
As for retail, Colliers International in its report has stated that retail markets in India along with China will register greatest growth in 2015. And in the backdrop of stabilising property prices, HDFC in its report has said that affordability of home buyers is rising. Another positive indication has come from Nielson's Global Consumer Confidence Index Survey which shows that in the first quarter of 2015, India leads in consumer index with a score of 130.
Considering all this, the prevailing crisis may prove to be a blessing in disguise. As a number of reforms and policy initiatives of the government fructify in the months ahead, real estate will emerge more regulated and much stronger and sustainable.
(Vinod Behl is editor, Realty Plus, a leading real estate monthly. The views expressed are personal. He can be reached at email@example.com)