What is your outlook for the Real Estate Sector in FY 2023 and beyond?
The country’s real estate market was greatly affected by the Covid-19 pandemic. The residential sector was the worst hit as strict lockdown measures across major cities in India impacted housing sales; home registrations were suspended, and home loan disbursement was slow. However, the sector is in a recovering phase due to the increase in house sales, new project launches, and increasing demand for new office and commercial spaces.
Supported by the strong economic growth, the real estate sector quickly picked up momentum. The pandemic-infused trends coupled with low-interest rates, affordability, and other favorable factors expanded the realty growth in Tier 2&3 cities, and it is likely to lead the sector’s growth in the coming years. Sales in the top seven cities is anticipated to increase by 3% in FY2023, following a strong FY2022 foundation. Therefore, strong demand and flexible pricing in finished projects might aid developers in maintaining profit margins.
Without a doubt, FY 23 will be the fiscal year that the sector has been waiting for. Interestingly, home prices will rise quickly in Tier 2 & 3 markets as well. Real estate in India’s smaller cities and towns will be supported by continued infrastructure improvements, improved job prospects, and expanded connectivity.
According to current trends, the future of India’s real estate market appears to be promising and is expected to develop further over the next decade. Other aspects such as buyer behaviour, prices, raw material costs, and demographic shifts will continue to have an impact on the sector’s numerous touchpoints. There has never been a better time for a buyer to enter the real estate market.
As a result of multi-year record sales, which has been fuelled by rising house ownership preference, improved affordability, and low home loan interest rates, among other things, the outlook for residential real estate for FY2023 has been altered from negative to stable. The sales are anticipated to continue, with the top seven cities’ sales anticipated to increase by 3% in FY2023, off a strong FY2022 foundation. Therefore, strong demand and flexible pricing in finished projects might aid developers in maintaining profit margins. In FY 23, strong and favourable developments are anticipated to continue in the Indian real estate market, supported by a strong structural base, increased demand, and decreased house loan rates. Without a doubt, FY 23 will be the fiscal year that the sector has been waiting for. Interestingly, home prices will rise quickly in Tier 2 and Tier 3 markets as well. Real estate in India’s smaller cities and towns will be supported by continued infrastructure improvements, improved job prospects, and expanded connectivity.
How will the recent hikes in Repo rates impact the real-estate market?
With the recent hikes in the repo rates, the prime impact will be that home loans will get costlier. There may be a short-term impact on demand as consumer and house loans become more expensive, especially for first-time home buyers. The impact will be taken in stride as the hiking of the repo rate will help control inflation in the economy. It will not be long-standing for consumers but act like a measure to control the inflationary problem.
After maintaining an accommodative stance for almost 2 years due to the pandemic, the RBI is taking steps that are necessary to ensure domestic economic recovery. On the real estate front, CREDAI welcomes Urban Co-operative Banks and Rural Co-operative Banks for increasing the upper limit for individual home loans by 100%, given the recent spike in building prices. The proposal to allow rural co-op banks to extend commercial real estate financing within the existing ceiling of 5% of total assets will increase real estate funding. CREDAI hopes that the Indian economy will continue to be resilient and overcome inflationary pressures by the end of the current financial year.
What measures is the Government taking to curtail the increase in prices of raw materials like steel and cement?
The Government of India’s slew of measures to control the spiralling prices of raw materials have been welcomed by the real estate sector, which has been suffering from the effects of raw material cost inflation for the last 18 months. Steel prices that had surged substantially by close to INR 85,000 a ton from 45,000, have now cooled down and currently sits at INR 62,000 – 64,000 post the correction. However, construction costs can become easy only if the skyrocketing prices drop below Rs 50,000 per ton by the end of this FY. While this small correction in steel prices has resulted in a marginal reduction of the overall cost of construction, we are expecting further reduction, which will depend on steelmakers’ export quantities owing to the rise in export duties and provided domestic sales can compensate for it.
The reduction in the VAT placed on fuel prices would also benefit developers, who will be able to relieve the burden of rising residential property expenses. Thousands of homebuyers will be able to purchase homes within their budgets as a result of this, resulting in increased consumer demand and improved consumer sentiment. Apart from these, it has been a long-standing demand of the real estate sector that the developers are given the option to choose from the existing rate of 1% and 5% without ITC or the pre-2019 rate of 8% and 12% with ITC on GST. Hopefully the GoI will take the recommendation positively.
How is CREDAI supporting the real estate sector so that it maintains its growth momentum?
According to the Housing Price-Tracker report, jointly conducted by CREDAI, Colliers, and Liases Foras, it was seen that after a prolonged decline, average home prices in India gained 4% YoY in Q1 2022, indicating that the residential sector is on the way to recovery.
In contrast to Delhi-NCR, where housing prices increased by a notable 11.3% year over year, prices in Bengaluru and the MMR region were comparatively steady. On a YoY basis, prices increased by 9–10% in New Mumbai and the western suburbs (beyond Dahisar). Additionally, the amount of unsold inventory nationwide decreased slightly by 1% as demand increased for 7 consecutive quarters as a result of low lending rates and generally stable pricing, even if prices increased in all 8 cities.
Moving forward, CREDAI advises the state government to reduce fuel-related state taxes as well to directly combat inflation. CREDAI genuinely hopes that manufacturers will extend the savings to consumers. This will assist real estate developers in offsetting the recent surge in construction expenses, which will benefit potential homeowners.
CREDAI also recommends the government to keep up its promising support for the sector and suggests providing GST benefits by lowering the GST to 1% across all residential property categories. It will be crucial to take advantage of the current circumstances and support the sector’s return to a U-shaped recovery.
What prospects do you see for the Commercial, Office, and Warehousing spaces?
In FY 23, strong and positive momentums are projected in the Indian real estate market, backed by a strong structural basis, increased demand, and decreasing house loan rates. Commercial assets will be one of the opted investment options in the realty industry as the real estate market sees a growth in demand for low-risk, high-return investments.
Although real estate investments are on the rise, rental yields and other commercial properties are safe options because of the recurrent rental income. Rental housing income is considered a good investment but the rise in rental rates has not kept pace with the rise in the value of the property. In Delhi NCR, rental returns are slightly less than 3% whereas in Mumbai it falls between 2.5-2.7%. Adding value or furnishing might boost yield by 25-50 basis points.
Commercial properties, on the other hand, produce substantially higher returns as e-commerce companies will continue to invest in warehousing, making it one of the fastest-growing commercial real estate segments with skyrocketing data center investments attracted by the country’s long-term prospects.
How do you look at the use of advanced construction equipment and project management technologies for reducing developers’ overall project cost?
Creating novel technology and productivity-boosting methods is one strategy to lower the cost of building. By using cost-cutting strategies, project costs can be controlled to prevent contractor losses during the execution of various project tasks. The goal of project control in the construction sector is to guarantee that projects are completed on schedule, within budget, and in compliance with other project objectives.
Any building job, as well as the management of the project’s progress, requires the computation of construction expenses. It includes all the precise organizational data needed to perform the project, including the materials, number of machines, and manpower requirements.
Real estate developers have adapted new technological methods to navigate their business during the pandemic and get maximum results. In fact, the pandemic made every industry move out of its comfort zone and work in new and creative ways, which led to adapting to new working ways. Proptech, which refers to all the technological tools that real estate professionals utilize to streamline the process of buying, selling, researching, marketing, and managing property, is now being used by developers.
The real estate sector is one of the largest employers in the country owing to the numerous (251+) industries it supports. The backbone are the construction workers who have helped transform the sector and helped drive an uptick in consumer sentiment. These workers mainly constitute people from rural areas in search of better jobs but with a lack of skills, are bereft of financial security. However, they continue to remain at the core of driving business in the sector. CREDAI’s recent initiative under the RPL with NIPUN mission will empower these workers and help them enhance their skillsets and eventually climb up the professional ladder.