31122016-rel-01.qxd 12/30/2016 5:31 PM Page 1 c m y b CHANDIGARH | SATURDAY | 31 DECEMBER 2016 VOICES: THE YEAR THAT WAS ❝ Demonetisation and the new regulations for the real estate sector may have briefly halted the march, especially of the residential property market but in the long run these will help the sector grow in a much more evolved manner. The impact of demonetisation is a transient one and the economy will undergo structural changes for the first three quarters of 2017.❞ Shishir Baijal, Knight Frank ❝ A Pan-India trend that emerged in 2016 was that a higher number of units were sold every quarter than new project launches in the same period. A slowing number of new launches helped reduce the inventory overhang and ready to move in inventory was the preferred choice of the homebuyers.❞ Amit Modi, Director, ABA Corp and Vice President CREDAI Western UP. ❝ The year 2016 turned out to be a reasonable one from the perspective of real estate in general and Omaxe in particular. Demonetisation is likely to bear fruit for overall economy in the medium and long term — interest rate as well as rate of personal taxation may decline over the next few months. That in turn should boost consumption and investment and thus augur well for real estate sector particularly affordable segment in tier II and III cities. Demonetisation is also likely to bring in greater deal of transparency and along with RERA; it will boost the confidence of consumers in the real estate sector, which would help the sector grow at a decent pace, more so in places like New Chandigarh, Lucknow and Ludhiana among others.❞ Rohtas Goel, CMD, Omaxe Ltd. ❝ This year was particularly good for the Tricity market as volumes picked up in both residential and commercial markets. The announcement on developing Chandigarh as a Smart City, the opening of the international airport in Mohali and the construction of the 200-ft ring road that strategically connects Panchkula, Zirakpur, Mohali and Kharar were the high point of 2016. Prices in the Tricity market remained largely stable in sharp contrast to Tier I cities, which witnessed a steep fall in prices post-demonetisation. Largely driven by end users, Tier 2 cities like Mohali and Chandigarh escaped the fallout of demonetisation on account of their small pocket size. The volumes of sales have gone up both in the ready to move and affordable segments. More than launching new projects, real estate developers in the Tricity were focused on selling off the huge unsold possessionready inventory stocked with them, the response to which has been quite encouraging, indicating that the demand-supply equation is in correction mode. Legislations like RERA and tax reforms like GST boosted the market sentiment. The cut in repo rate by 50 base points this year, accompanied by reduction in interest rates by banks, created more demand, especially in the residential space. This year's gains will carry on in 2017, enabling the real estate market of the Tricity to perform even better.❞ Tejinder Pal Setia, Chairman, Mona Townships Pvt Ltd. ❝ If we say 2016 was a subdued year for Indian realty, most among us would agree. We could hardly see any traction during Navratras and Diwali, which is considered to be the most peak time for transactions. Whatever transactions in group housing segment were seen, were from the end users looking for their dream homes. Majority of them were from consumer durables, PSU & IT sectors.❞ Kaushal Nagpal, Co-Founder, BookingKAR concludes ❝ With all the unnecessary negative hype about the slowdown in the sector; at a macro level, 2016 was actually much better than many years before it. This year we saw a realty sector favoured Union Budget which was later well complimented by the passage of RERA and GST. RBI played its part seemingly well by reducing the repo rate by 50 basis points this year. Banks also gave some cushion this year by reducing the interest rates by a fraction margin twice this year. All the gains from this year will be carried forward to 2017 that will allow the sector to perform even better.❞ Rajesh Goyal, Vice President CREDAI-Western U.P. & MD, RG Group ❝ 2016 might well go down in the history books as a watershed year for the Indian real estate industry, with huge economic and regulatory reforms attempting to alter the fundamental functioning of the sector. These reforms, which are likely to consolidate the realty industry making it more organised, will also lead to lower investments, increased input costs, and longer deal closure cycles in the short run, as investors and end-users would like to gain more clarity before making the decision. However, in the long-run, they will also change the way the real estate sector operates, aligning it to international standards which will also help in raising fresh funds.❞ Ashish jerath, Emaar ❝ 2016 has been the unconventional trailblazer for the real estate sector with several new reforms and surprises. While the new policy announcements brought some cheer, the positive outlook was balanced by demonetisation and no new rate cuts. The challenges before the sector are multiple ranging from policy uncertainty to liquidity crisis, but multiple initiatives for uplifting the mood of the buyers might lead to a revival.❞ Brijesh Bhanote, CMO- Paras Buildtech ❝ The industry faced headwinds in terms of slow sales which was then followed by a reduction in project launches. Interest rates that were expected to come down stayed stubbornly high. The passing of the Real Estate Regulatory Act (RERA) added more confusion to the industry. This is been a year when judicial intervention for nondelivery by developers has been at its highest.❞ Rohit Gera, Managing Director, Gera Developments & VP, CREDAI – Pune Metro ❝ Although there was no monumental change in terms of buyer’s sentiments in 2016, notable improvements were observed in numerous areas such as rising influence of NRI investors in Indian real estate, surge in demand for international properties & uptick in institutional investment. Changing lifestyle & expansion in young buyer base is making smaller units, one of the most sought after asset class.❞ Kanika Gupta Shori, COO and Co-founder, Square Yards 2016 will remain a milestone year in the history of realty in India for major policy decisions that will reshape the sector in the coming years. From the passing of RERA, the Smart Cities initiative, consumer activism to the demonetisation move, it was a year that saw virtual demolition of several established norms. Here’s a look at the defining moments of the year that surely was ... A year of churning VINOD BEHL The real estate sector that faced turbulent times this year, is staring at another challenging year ahead, following disruption caused by reforms like Real Estate Regulation Act (RERA) and demonetisation. But all this may augur well for the real estate in the coming times. Amidst prevailing uncertainty, the new year may well see real estate firmly put on the path of transformation and consolidation, towards more stability and healthy growth. Muted sales The year 2016 started on a promising note as real estate had a smooth start. But much against the the expected revival, real estate especially residential real estate faced headwinds in terms of weak demand and muted sales in the backdrop of large scale delivery defaults, developer-buyer face off, unaffordable prices and high interest rates. The introduction of RERA, added further confusion to the prevailing chaos and finally towards the end of the year, demonetisation badly hit the struggling sector, with the year coming to TRENDS TRIBUNE PHOTO: VIJAY MATHUR a bumpy end. It was a gloomy year for housing market. The ever widening trust deficit between developers and home buyers added to the woes of residential real estate, especially because of large number of developers not delivering their homes on time. The top seven cities in the country have over 1.5 million units delayed between 14- 30 months, with one fourth of them in NCR. And due to buyers’ lack of trust, home selling became extremely difficult. Even those who took a buying decision, preferred ready-to-move homes, in order to secure their investment. By the end of Q1, 6.6 lakh units across top 8 cities remained unsold, with NCR topping with 2 lakh unsold units. Even the festive season couldn't be of much help as hardly did the sales start picking up, demonetisation struck the blow. Demonetisation will adversely impact those real estate developers who follow business model with large cash component. There will be likely downward pressure on prices as these cashstrapped developers will be compelled to liquidate their inventory at discounted rates to generate cash flows. However, it will have a positive impact on home buyers, especially buyers of affordable homes who invest through home mortgage and do trans- actions through cheque. Going forward, demonetisation will bring in more transparency in real estate transactions and bridge the gap between primary and secondary market prices. Saving grace While residential real estate was found struggling, the commercial real estate saw healthy demand (26.4 msf by 3Q 2016), with total yearly pan India demand expected to touch 34.2 million mark, driven by sectors such as manufacturing, logistics and FMCG. Gaining further strength, commercial realty is likely to see a higher demand of 38-40 msf in 2017, with cities like Chen- nai, Hyderabad and Pune driving the growth. The theme song of the year was affordability, with affordable properties clearly dominating the property landscape across cities. With developers increasingly taking to affordable housing in view of rising demand, about 59 per cent projects were launched in this segment. The developers also resorted to developing compact sized homes to make them more affordable. And considering that the residential real estate was still facing lot of stress, the government, in line with its 'Housing for All' mission, also put its entire focus on affordable housing. Policy boost In this year's budget, developers were incentivised by way of 100 per cent service tax waiver for affordable homes of sizes up to 30 sq m in metros and 60 sq m in non metros. But to promote timely delivery, the tax benefit was linked to completing construction within 3 years. There was a rebate of ~50,000 p.a on housing loan interest for first time homebuyers in affordable segment, with loan not exceeding ~35 lakh and property value not exceeding ~50 lakh. The rental housing also got a boost with HRA hike from ~ 24000 to 60000. There were many positives in the otherwise dull and difficult year. continued on p4 2016 Joint Developments Office Retail Complexes Land acquisition by developers over the past one year or so, hit roadblock as debtridden developers found themselves cashstrapped amidst sales slump, to buy land for new projects, especially for large land parcels. The valuation mismatch between sellers and buyers together with regulatory and legal hurdles, also made developers to shy away from outright purchase of land. In this backdrop, real estate developers preferred to go for joint development model. This model suits distressed developers as this is not only capital light model but also brings in much needed liquidity, helping builders to focus on construction and delivery. Several key players from NCR & Mumbai, Bengaluru like Tata Housing, Embassy Group, Brigade Enterprises, Lotus Green, Radius Developers, Deserve Builders entered into development management agreements. Mall developers like Oberoi Realty and Phoenix Mills are tapping global PE funds like Morgan Stanley and Canadian Pension Plan Investment Board for partnerships to develop malls. The industry also witnessed another aspect of joint developments with smaller developers joining hands with bigger players for project execution and marketing. On the retail front where absorption was nearly twice the supply in 2016, a number of malls which were not doing well, were redeveloped into office complexes and shopping centres. As such, the year saw the emergence of new format of retailingOffice Retail Complexes (ORCs). The highlight of this mixed use developments is that it’s a win win for both mall developers and retailers. While developers have a strong differentiation to boost commercial occupier retention and revenues, retailers get better value for money with comparatively lower rents, especially for sought-after ground floor retail spaces and greater footfalls. ❝ The Indian retail market appears to have bottomed-out the slack and is expected to grow rapidly in the coming years. With foreign retailers entering the country and expanding aggressively, brands are preferring to be located in well-performing malls that see higher occupancy levels. Hence, over the next few years, investors will be on a lookout for professionally managed, well-run malls that would witness yields improving and rental values inching up, thereby improving returns for investors.❞ Anshul Jain, Managing Director, India, Cushman & Wakefield Municipal bonds for smart cities The year also saw several civic bodies tapping bond market to arrange funds for making their smart city development plan functional. Under Centre’s Smart City Plan, 100 cities were selected for upgradation of physical and social infrastructure, with a view to enhance the quality of urban life. Many municipal bodies like Pune, Hyderabad, Bhopal, Vishakhapatnam, Panaji are out to tap bond market to raise funds as bonds have not only longer tenure but also do not require guarantees or physical collateral. Greater Hyderabad civic Global investors shop for stressed assets Focus on Delivery As developers’ credibility got a hit and prospective homebuyers deferred purchases in the backdrop of large scale project delays, the focus turned on completing and delivering projects in order to win back the confidence of consumers, especially in view of RERA’s provisions to penalise erring developers. Sitting on huge inventory amidst slow sales, developers got liquidity infusion through PE funding and NBFCs to complete their projects and give possession to homebuyers. Especially in Delhi NCR, high on delivery defaults, developers focused on delivery in a big way. Ajnara India offered the possession of 2,000 units while Raheja Developers lined up 1,600 units for delivery including 300 in Raheja Arthava and Vedanta, 800 units in Raheja Navodaya and Sampada and 250 units in Aranya City. Emaar India commenced the handing over in Emarld Hills by issuing intent letters for possession to 413 home buyers. In the wake of prolonged slowdown, the fund-starved real estate sector threw up an opportunity for global investors looking for good deals of stressed assets (bad loans and stuck projects) Brookfield Asset Management, has been specially active in buying apartments in bulk at deep discount, taking advantage of slump in sales and high unsold inventory. Peninsula Brookfield bought luxury apartments worth ~120 crore from Omkar Realtors. HDFC Capital launched a new equity fund- to pick up equity stakes in midincome housing projects. Piramal was biggest investor in residential proj- c m y b ects investing ~232 crore in Lodha Group’s World Towers. There is a lot of activity on the commercial real estate front. Global PE major, Blackstone bought 1 msf mall space in Seawood area in Mumbai, from L&T Realty. Piramal intends to finance completed office projects worth ~1500 crore through flexible lease rental discounting model. While PE funds like KKR, SSG Capital Management etc have already acquired stakes in Asset Reconstruction Companies (ARCs) to buy bad loans, Brookfield, Piramal Enterprises, Apollo Global, Bain Capital have earmarked $2 billion to collectively buy stressed real estate assets. ❝ Credit worthy developers and projects have seen a rush of investment by Realty funds as well as FDI funds. Many funds such as Piramal and Milestone have also been able to exit their investments in property developments at above 20% internal rate of return. Many funds, like Blackstone, have been purchasing rent-worthy properties, especially in the commercial sector, as a precursor to entering the Real Estate Investment Trusts (REITS) market. 2017 should be the year when this injection of formal funds into the property markets will get crystallised.❞ Jayashree Kurup, Head, Content and Advisory, Magicbricks. body plans to raise ~3,300 crore through municipal bonds over the next three years. These bonds hold attraction for long-term investors like insurance and pension companies, besides mutual funds. For the Smart Cities Mission, the central government wants to create a fund of about ~1 lakh crore, contributing ~48,000 crore over five years to improve public services and infrastructure. Since a matching contribution needs to be made by states/municipal bonds, they are increasingly taking to bond market to raise money, in order to reduce their dependence on grants and local taxes. Home sales overtake home launches The year 2016 saw a unique trend of residential units sold, outstripping those launched during the first three quarters of the year — a sort of record over the past eight years. Reeling under slowdown and sitting over huge inventory, real estate developers, successfully managed to sell 1.20 lakh residential units compared to 1.06 lakh units sold between January and October, across Mumbai Metropolitan, Delhi NCR, Pune, Bengaluru, Kolkata, Chennai. However, according to Cushman & Wakefield “after witnessing a slowdown in launches in 2015, 2016 (Jan-Sept) saw the launch of approximately 90,000 units across the top eight cities in India (recording an increase of 16% year-on-year), led largely by a twofold increase in the launch of units in the affordable segment.
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