By Jeet Singh
Staving off the triple impact of Real Estate Regulation and Development Act (RERA), Goods and Services Tax (GST) and Demonetization (which had brought the sector to a grinding halt), India's Real Estate is back on the growth path. Increasing urbanization and rising household income have not just heightened demand of new housing units, but also caused a cascading effect on price stabilization, transparency, credibility and market consolidation. Now, even small-time builders are joining the realty bandwagon; while medium-size players are pushing the pace of project launches; and business groups from other sectors expanding their operational ambit, are entering the sector to sustain their future business viabilities. Adding to the momentum are measures like ease of FDI, Insolvency and Bankruptcy Code (IBC), and Indian Accounting Standards (Ind AS), which are enhancing the credibility and trustworthiness of the sector.

Summing up the scenario, Finance Minister Arun Jaitley, said, "The move will provide a boost to the real estate sector as it was burdened with a huge inventory and now the rate cuts would make owning a new home cheaper and more affordable for the common man. Houses under this bracket have been divided into two categories: metro and non-metro, whereby the determining criteria for eligibility will be cost and carpet area. In metro areas - Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad), Mumbai, Kolkata, Chennai, Hyderabad and Bangalore, the eligibility for affordable housing would be properties worth Rs 45 lakh and 60 sq.m carpet area and in non-metro cities it would be Rs 45 lakh and 90 sq.m."
Commenting on the rate cuts, Managing Director of Saya Homes, Vikas Bhasin said that for older projects, developers will go for older rates, and hence the fear of losses is gone. Now the sector can get back to delivering homes to buyers according to the demand. After April 1, we may see an upsurge in houses that will fall in the category of affordable homes as per the GST Council's definition.
CMD, Ajnara India, Ashok Gupta, said that the GST Council's decision to provide developers with an option to either go with the old rates with ITC or choose the newer rates, as without ITC it is a welcome move. It is beneficial for developers who had already worked out the sale price after factoring in the input credits of the project and had already passed on the benefits to the customers. Going by this reason, most of the developers who had announced the project earlier, will go for the option where they can charge GST at old rates i.e. 8 percent and 12 percent.
Current scenario & emerging trends
Currently, Delhi NCR and Mumbai Metropolitan Region account for 55% share of the total 6 lakh affordable units launched across the top seven cities in the country. The NCR saw maximum supply of the total 3.98 lakh units sold in sub Rs 40 lakh category, NCR & MMR hold 57% share, Pune comes next with 1.13 lakh units launched and approx. 75K units sold in the affordable segment. Bengaluru, Chennai and Hyderabad saw the least activity in the affordable segment. This is the biggest as previously 'unaffordable' real estate markets of NCR and MMR have led the thrust of affordable housing - in both new supply and housing sales - over the last five years. These two regions contributed a whopping 55% share of the overall new budget housing supply between 2014 and 2018.
The report, which knowledge partners ANAROCK unveiled at the CII Real Estate Confluence 2019 in Mumbai, also finds that of the total number of units launched during this period, approximately 3.98 lakh were budget homes. In its entirety, the Housing for All by 2022 mission threw a much-needed lifeline to the affordable housing segment. The term 'affordable' has become respectable and builders, who earlier shied away from it, now hold huge portfolios in this category.
As a matter of fact, an unsold inventory in the Real Estate sector across top cities has declined by 7% from a year ago as there is an uptick in sales of ready-to-move-in and nearly-completed houses, as per ANAROCK Property Consultants. Inventory levels plummeted to 33 months at the end of December from 47 months a year ago in Mumbai, Delhi-NCR, Bengaluru, Pune, Hyderabad, Chennai and Kolkata. While inventory levels in Bengaluru and Hyderabad fell to an all-time low of 17 months each, the Delhi-NCR still constitutes 52 months' inventory overhang. Having absorbed a lot of the impact of various structural changes, India's real estate sector seemed poised to grow from the previous year. In the prevailing scenario, the end-users accelerated growth while investors shifted focus towards alternate asset classes such as commercial, retail and warehousing, which did fairly well during 2018. The top 7 cities recorded launches of around 195,300 new units in 2018 as against 146,860 units in 2017. The affordable segment commanded the lion's share at 40%, with Mumbai Metropolitan Region, NCR, Pune and Bengaluru accounting for 74% of the new supply.

Similarly, for affordable housing, the concessional GST is 12 percent minus 4 percent as land value, which means an effective rate of 8 percent. Top realty sector players said that GST Council's decision to reduce rates for the real estate sector will bring many more properties (even in the premium segment), into the affordable category. However, the real estate sector still has complaints. Developers claim that the move may increase demand and revenue but hit profitability for the supply side due to the absence of input tax credit. They agree that the GST Council's decision will push demand and increase sales of under-construction properties.
In his reaction to the GST Council's decision, Pradeep Aggarwal, Co-founder & Chairman, Signature Global, and Chairman, National Council on Affordable Housing, ASSOCHAM, reiterated that the body has cleared the air with this decision and left it to the developers to choose from the two options. Developers will go with the old GST rates in case where they have already passed on the benefit to buyers and decided the sale price of the projects launched prior to April 1, 2019. Now developers have to work towards undertaking the changes in the system (IT, documentation and processes) to meet the deadline of April 1. Managing Director, RG Group & Vice President, CREDAI NCR, Rajesh Goyal, insisted that the decision is a good step to solve the transition issue that developers are currently facing. Most of the developers have already bought the raw material for projects launched before April 1, 2019, and they were in confusion regarding the GST charges to the buyer. Echoing his viewpoint, Jaxay Shah, National President of the Confederation of Real Estate Developers Association of India (CREDAI), said that the reduction of GST on affordable housing to 1 percent is a revolutionary move for the Indian real estate as the initiative is a significant triumph for home buyers and will boost buyer sentiment."
GDP, fund flow & job generation
Analysts opine that in the changed scenario, the Indian real estate is expected to contribute 13 percent to the country's GDP by 2025. In 2017, it contributed about 6-7 percent and is expected to touch $1 trillion by 2030 as it is on the threshold of becoming the third-largest sector, globally. Apart from GDP, its growth holds significance as the third largest employer, after agriculture and manufacturing, and currently employs over 50 million people. The trends indicate that 2019 seems to be an opportune time for affordable and mid-housing segments along with investments.
There has been a noticeable rise in ready-to-move units and also the under-construction projects are expected to see a massive push in the changed tax regime. Experts estimate that the reduction in GST can potentially reduce the buyers' payout by 6 to 7 percent on the overall purchase, depending on the category. The consequent accelerating sales will bring down the unsold inventory which has been afflicting the sector. Experts are unanimous in stating that GST rate cuts with expanded definition of affordable housing, together with incentives proposed in the Budget, and the reduction prime lending rates by the RBI, will take residential housing sales to new heights.
"For NRIs, it will be a major boost because they largely invest in under-construction properties as an investment and not for their end-use. Thus, a flat 5 percent rate of GST on under-construction homes without the ITC would provide an indubitable and transparent benefit to NRI buyers," said Shajai Jacob, CEO of GCC at Anarock Property Consultants.
Shahul Hameed, Managing Director, Thani Technical Enterprise, commented: "For NRIs, the stimulus is certainly positive, offering a major incentive to take a relook at the property market, which has been grappling with slow demand after demonetization and GST. The proposed tax cut appears to augur a bounce back for the industry by rekindling demand from overseas investors."
The currency ban proved to be a blessing in disguise as it strengthened the formal banking system with more and substantial deposits, resulting in a higher cash reserve with banks, which flowed into the economy, offering sufficient funds for PMAY's 100 lakh houses to be built under the Housing for All program. Additional government schemes like the Credit Linked Subsidy Scheme (CLSS) have also ensured availability of affordable credit for low-cost house buyers. Currently, investors have white money to safely invest in real estate, which is also being backed by a healthier socio-political environment.
Players engaged in real estate and allied sectors are likely to go for aggressive hiring as there are lot of opportunities in commercial, retail, and healthcare segments, which are currently under-supplied. Anshuman Magazine, Chairman & CEO, India, South East Asia, Middle East and Africa, said that the reason for large-scale hiring is due an escalation in demand for housing. Plus, the stronger regulations under RERA have also boosted consumer confidence in realty transaction related activities, which in turn will have a multiplier effect on job generation.
Counterpoint
The GST Council's decision to offer option to choose between 12% with input tax credit versus reduced rates without input tax credit will confuse customers as customers will prefer reduced rates whereas developers might prefer higher rates with input tax credit. According to Chief Investment Officer, PropTiger, Ankur Dhawan, there are likely to be many more disputes and cases in anti-profiteering in the coming days.
Market watchers also claimed that there is no doubt that reduced rates for the real estate sector will bring many more properties, even in the premium segment, into the affordable category. But the sector still has complaints and the realty players apprehend that the move may increase demand and revenue but hit profitability for the supply side due to the absence of input tax credit. Real estate players agree that the GST rates cut will push demand and increase sales of under-construction properties and the likely demand supply mismatch may push prices in the short run.