Overview of the Year 2015 for the Real Estate Sector

Mr. Amit Modi, Director, ABA Corp and Vice President CREDAI Western UP
Indian Real Estate Sector
Project Name: Orange County Location: Indirapuram, Ghaziabad, UP

2015 has been quite significant year as the government has made all the right moves to drive the growth of real estate sector. It has initiated a number of polices which when implemented should hopefully give the much needed fillip to the sector going forward.

Allocation of Rs. 100,000 Crore funds for Investment sector powered by Smart City Mission, AMRUT, GST implementation and Make in India campaign; incentives like raising the stakes for FDI in real estate, State Regulatory Bill were some of the key initiatives announced by government which all are a positive move for the real estate sector.

Views on the likely investment scenario in real estate in the year 2016
For Indian real estate sector 2015 has been the witness of regulatory changes including relaxing of foreign direct investment laws and the Union Cabinet approving the much awaited Real Estate Bill which is a positive move for the real estate sector.

And now the investment scenario in real estate market in the year 2016 is likely to flare up as most of the factors influencing the realty sector will turn positive reversing buyers' as well as developers' sentiments.

Reduction in interest rates for home loans has been a key factor responsible for the changing mood of the market. Lower interest rates, along with stable property prices should fuel the middle and lower income segment of buyers.

Listed below are the few major factors which will stimulate the revival of real estate sector in the year 2016:

1. Lowered interest rates: Since January, the RBI has reduced the repo rate by 125 basis points in four separate cut this year. However, the banks have not been generous enough to pass on the entire benefit of this reduction to end consumers and less than half of the cumulative policy repo rate reduction of 125 bps has been transmitted by banks. The median base lending rate has declined only by 60 bps.

While RBI has taken steps to considerably reduce rates, the interest rate transition from banks to the consumers has been gradual. Across the year, the total of 125 bps cut in the rates has been already done and now much depends on how banks transmit the benefit to home buyers.

We sincerely hope that both Finance Ministry as well as the RBI push all the Banks to transfer the benefits to the end consumer, else these moves will severely stop short of benefiting the consumer and only help in buffering the bottom lines of the bank.

2. Easy payment plans: With real-estate prices already at rock bottom, it's indeed an opportune moment to invest in the sector, especially for millions of aspiring first time buyers desiring to achieve freedom from rent and achieving to own a house.

Orange County Indirapuram
Project Name: Orange County Location: Indirapuram, Ghaziabad, UP

Now one of the biggest hassles for any individual planning to purchase property is to find the extra cash required to pay the EMI along with the rent for his current rented accommodation. Therefore more than often the opportunity of investing in a under construction property is lost.

But with banks and housing finance institutions looking to increase their base, the sheer number of lucrative plans in the real market is an opportunity in itself for genuine end users planning to move in their own accommodation.

The "Holiday Plan" offered by us at ABA Corp for our flagship project Cleo County in Noida and Cherry County in Greater Noida West are examples of such out of the box initiatives, where by consumers can be proud owners of a Cherry County apartment for just an initial down payment of just 10 percent of the total value.

This "Holiday Plan" would then allow the buyer to not pay a single rupee on the bank loan of nearly 80 percent until the offer of possession in the projects since until then all the pre-EMIs would be borne by ABA Corp. Finally the apartment owners get to then be the proud owner of their home post payment of the remaining 10 percent on the offer of possession.

The "ABA Holiday Plan" initiative has been devised to achieve freedom from rent for millions of genuine and first time buyers, looking to be a proud home owner, within their limited means. Hence, the prevalence of these schemes will help pick up buying properties in many cities as well as towns.

Tier II, Tier III cities rise: Most of the developers, both big and small, is also heading to upcoming tier II cities like Pune and Chennai where there is higher chance of capital appreciation along with the rising demand for luxury and semi-luxury apartments.

Other Tier II cities, like Indore, Chandigarh, Lucknow, Jaipur, Kochi, Coimbatore and Visakhapatnam, too are experiencing growth. The developments in these towns will be the biggest focus of the many developers in 2016.

3. Smaller unit size / more affordable units: The change has already happened and developers have realized the need to right-size and right-price their offerings. One of the other ways to achieve it in short term is to decrease the unit size to make the apartments more affordable. Since most of the consumers are looking for safe and amenity rich housing, there is only a small niche that can afford ownership and maintenance of huge size apartments, in fact one of the biggest trends in coming year will be smaller feature rich affordable units within the ticket size of Rs 35- Rs 60 lakhs. A large number of developers are re-drawing their plans to converting 2BHK apartments into 1BHK apartments in India with fewer and simpler amenities. This will end the exclusive growth of luxury condominiums only in all the new locations, creating only posh localities out of most real estate hubs.

4. Increased FDI in realty: The long awaited FDI reforms are welcome news for the sector been facing distress for a long time now. Even though it's mostly removing the bottlenecks that had made FDI in the sector nearly impossible, doing away with some of the restrictive conditions was the need of the hour. In term of specifics the earlier policy required a minimum of 20,000 square meters of development and a minimum capital of $5 million, which by definition tended to favour foreign investments only in larger Tier-I cities as development at this scale in Tier-II and -III cities of would often be non-viable. By doing away with these conditions, investment can now flow into specific developments where 20,000 square meters size criteria was a problem.

Also allowed the FDI investment in the small projects, will give a huge boost to affordable housing segment, which is in line with the intention of the government to provide housing for all by 2022.

Cleo County Noida
Project Name: Cleo County Location: Sector -121 Noida

Removing the requirement of bringing in foreign investment within 6 months of commencement of the project under the earlier policy will give a fresh lease of life to several projects stalled midway by assisting embattled developers who can now access foreign investment. Though foreign investors were keen to invest in such projects, the requirement to bring in funds by 6 months created a hurdle.

Lastly even though imposing a 3-year lock-in on the investment we deter a lot of the investors wanting to invest in the sector, it's still better than the earlier policy that required the foreign investor to exit from the investment only on completion of the project or completion of the requisite infrastructure like sewage, lighting, etc which meant getting entangled with bureaucratic permission related to the project.

As a balance the proposed changes still permits the foreign investor to exit earlier if the project or trunk infrastructure is completed earlier, but 3-year lock-in is on the higher side, and we hope will get diluted in future amendments.

The sector has been slow for a very long time now. With enough boost from the government, this state of affairs is all set to change in 2016.

Major cities that can provide better return on investment for real estate in 2016
Infrastructure makes a city worth investing and also drives the real estate growth. Bhiwadi, Jaipur, Ghaziabad, Delhi (L-zone) and Faridabad are good investment picks in North India as infrastructure is one of the major factors that is driving real estate growth in most of these cities.

Also Gurgaon, Noida, Jaipur, Neemrana and Lucknow are best cities to invest in North India as most of these cities are witnessing good development, investment in infrastructure, and have a good existing or developing economic base which is or will attract more people, thus driving the need for real estate. Jaipur and Lucknow are capital cities and enjoy good investments into infrastructure by the state governments, while also enjoying good connectivity and have seen healthy investor participation, albeit largely in the residential sector.

Cleo County Noida Night View
Project Name: Cleo County Location: Sector -121 Noida

Delhi Mumbai Industrial Corridor (DMIC) passes through various existing industrial clusters and towns and cities that are likely to become investment hubs. Bhiwadi, Ghaziabad and Jaipur are seeing the impact of this corridor. Moreover, all the identified cities are also witnessing the impact of the industrial development in and around the regions. Additionally, property prices in these cities are relatively affordable.

While Noida and Greater Noida have been touted as top investment hubs, it is Thane and Navi Mumbai that gave investors maximum returns in the past four years and will continue to give best returns to its investors.

The hottest growth corridor where investors as well as end-users /home buyers can park their money for maximum return in the approaching year
1. Noida & Greater Noida: Starting from NCR region, Noida & Greater Noida is the hottest investment destination which will give the maximum return in the approaching year. With the fast-paced development in infrastructure in Noida and its vicinity, real estate growth has really picked up here over the past few years and it has emerged as one of the real estate hubs in north India. Having a strong commercial base and proximity to the capital city Delhi, Noida has done really well in the real estate game. The evolving infrastructure is another reason why these cities are preferred by the investors. The affordability factor is also a positive side of these cities.

Since infrastructure development is the primary draw for buyers and investors into this area hence with the development of good infrastructure, metro connectivity and good road network, real estate development in the Noida regions is picking up rapidly.

With advanced infrastructure, its proximity to metropolitan city like Delhi and huge settlement of IT/ITES companies has made the real estate market of the city to flourish heaps and tons in past few years. Noida certainly open doors of employment for the large number of crowd from every part of nation. Thus the demand of buying and renting properties in Noida is high among the working professionals.

In fact, the positive response from buyers and investors in Noida has now made this the preferred destination for launching new projects and expediting existing ones. All in all, Noida is beginning to emerge as one of the brightest stars in Delhi NCR real estate.

2. Faridabad: For decades now Faridabad has been the ignored cousin of Gurgaon in Haryana, and mainly due to the infrastructure leap Gurgaon took a few decades ago, but at the same time importance of Faridabad as a key industrial hub in Delhi's satellite has stood its ground, and now with Badarpur-Faridabad Metro operational, it would give impetus to economic growth in the region.

The ease of connectivity will dramatically increase the footfall in the area, and will virtually make Faridabad a part of the city. Besides the fact that the new section could help boost employment opportunities in this key industrial hub, we foresee a dramatic surge in the real estate prices, especially in the commercial and industrial space.

3. Manesar: With improving connectivity, expanding cities and rising property prices, more and more home buyers are looking at places close to metro cities. Developers are also betting big on such locations. Located in south of Gurgaon, a New Delhi suburb, Manesar is emerging as an important industrial belt with Phase I of the Industrial Model Town already complete. The work on other phases is going on. Apart from manufacturing; Manesar is attracting information technology and related companies as well. The industrial town is expected to generate a large number of jobs, which will drive demand for residential properties. The Kundli-Manesar-Palwal Expressway, though delayed, is expected to add to the demand. One of the fastest growing industrial towns in the country, Manesar's proximity to Delhi, Gurgaon and commercial hubs like Mumbai, Jaipur, Rewari and Ahmedabad has added to its strategic value.Buying property in a location that is well-connected and an upcoming industrial hub is apt not only from the end-user point of view but also from the investment point of view. The workforce of Manesar and Gurgaon are eyeing at the new developing sectors owing to the availability of affordably priced homes.

4. Bahadurgarh: The government has recognised the importance of Bahadurgarh and is taking a number of initiatives to develop it. Hence for a developer to look out for developable areas where they can provide housing at a better price also depends on the government's plans for infrastructure development like electricity, water and sewage facility in the area.

But from an investment angle, Bahadurgarh Bypass has emerged the best location to invest. This 75 metre-wide road with service lanes has seen the highest number of launches in the past couple of years. With the rapid real estate development evident on either side of Bahadurgarh Bypass, the locality is set to become one of the most sought after real estate destinations. Fast improving infrastructure and excellent connectivity with established centres of Delhi and Gurgaon are the biggest selling points. Considering all the growth drivers that are scheduled for the next couple of years, Bahadurgarh ranks among the promising real estate markets in the NCR.

5. Bhiwadi: Located at just 40 km from Gurgaon, Bhiwadi is witnessing a shift from its erstwhile image as a mere industrial area to destination with full-fledged real estate viability. And now with the initial clearance to set up a second airport in the proximity of IGI at Bhiwadi may spur real estate and land prices in the surrounding area. With the onset of this airport, Bhiwadi will see rapid improvement in the social and civic infrastructure which will further enhance the real estate investment attractiveness quotient in this area. It will also have an economic multiplier effect due to the huge employment generation. The airport will be a major infrastructure gain for the region, owing to which the sector will observe better market acceptance resulting in greater demand and better price appreciation in future. Having an airport in the region will also have a positive impact on the cost of land.

Hence, mentioned above all cities are expected to give the best possible return of investment after 5 years.

NBMCW January 2016

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