Indian Real Estate Industry in 2018 – Opportunities and Challenges

Indeed there are a lot of questions laced with anxiety. Will 2018 be a better time to invest in real estate? After a slowdown in 2017, will real estate be back on track in 2018? The year 2017 had set an unexpected precedent. It saw a 30% drop in the number of units sold as compared to 2016.

With demonetization in the later 2016 reducing the availability of cash, along with GST and RERA, the real estate section experienced tension amongst buyers and sellers alike. Although, it saw a change in the attitude of the buyers preferring well-known developers at a premium, and a greater demand for 2 & 3 BHK homes, yet buyers were holding back purchases in anticipation of final RERA notifications.

Experts believe that the year 2018 will witness a new transitional phase for real estate in India. The market is expected to show a sign of improvement, for the sector is becoming more buyers friendly with newer reforms. In that pretext, let us dive into the three significant questions for 2018.

What are the existing challenges of buying property in India?

  1. Regulatory Pressure: Like in 2017, developers will have to confront the effect of RERA by concentrating on finishing the ongoing projects. As the supply of ready-to-move-in properties will expand, builders will confront the challenge of finishing the task on a specified due date.
  2. Single Window Clearance: Property clearance for a real estate developer takes from 18 months to 3 years. Single window clearances as envisaged wont just cut down the project delay but significantly impact the construction costs.
  3. Home Loan Interest Limit: The rising of the home loan interest limit from 2 lakhs for one financial year to 5 lakhs will make the purchase of home very attractive to individuals. It will increase the demand for homes as consumers will save more on taxes.
  4. GST Rate: 2018 has seen clarity on GST in the real estate industry. There is no GST for completed, ready to move in properties, properties for which completion certificate has been issued, and for resale of properties.
  5. Rising Input Cost: The real estate industry is both capital and labour intensive. Labour availability, unstable price fluctuations in concrete industry and other dependent industry impacts the real estate industry significantly.

Growth opportunities in buying a house in India

  1. Focus on Delivery: 2018 will see developers concentrate on finishing the ongoing ventures within the due date. Henceforth, this year should witness significant sale deals being closed quickly. The buyer stands to gain by getting his home at a good price.
  2. Tax Incentives: Government is doing its best to help boost the ‘reasonable housing’ segment through credit linked subsidy schemes. It accompanies a 4% subsidy, as it deducts one-third of the amount charged for the house towards the cost of land.

Changes in 2017 to shape 2018 and ahead:

  1. With RERA and GST stabilising in 2018, both buyers and builders will have to get a new outlook on how real estate business is done. Although there is GST for under-developed projects, but there will be enhanced transparency that will help both the buyers and the builders.
  2. Clean Capital: RERA and Demonetisation have changed the entire process of building and purchase of a home. Investors and banks have further opened up the road for clean capital in 2018.
  3. PMAY – housing for all: The objective of the Prime Minister to construct homes for all by 2022 under the Pradhan Mantri Awas Yojana will definitely get a noteworthy change financially with $1.3 trillion. This will make 60 million new houses and 2 million occupations throughout the following 4-5 years. The urban real estate should see a significant lift in 2018, and affordable housing could rise as the new trend.
  4. Favorable Low Interest: The excess liquidity due to demonetisation has made it possible for banks to lower home loan interest rates. It is expected that EMIs will significantly come down, enabling savings for the home buyers.
  5. Affordable Housing Plans: The budget of 2017 had proposals that could benefit and boost the real estate sector in the year 2018. The focus was on affordable housing. One such initiative was to award 100 percent tax deduction of profits to an undertaking in affordable housing ventures for flats.

 

Is price of real estate in India likely to rise or fall?

After the dip in real estate prices in 2017, residential prices is expected to remain for the most part stable over the following couple of months. As envisaged, there hasn’t been a huge plunge in costs to the extent that the primary market is worried. The year 2018 is probably not going to portray any value increase, nonetheless, experts believe that the current changes will boost the trust and certainty of the home buyers and the sales are probably going to rise in 2018.

With everything taken into account, the year 2018 will remain a decent time to purchase. It is normal that the market will see more alternatives in ready stock since more number of project completions are expected. As of now, there has been a lack of new project launches because of the introduction of RERA, which could negatively affect the supply of land or real estate properties.

The outlook for the year 2018 is as follows:

Residential segment has been low in 2017 because of demonetization, GST and RERA. Deals backed off; general projects likewise declined. It created a great deal of liquidity crunch. The effect was felt more in NCR and Mumbai, however, the real estate industry has endured on the whole. The positive side is that the affordable housing segment is gearing up.

Going ahead, the standpoint for the residential sector in 2018 is extremely idealistic. Supply is coming in the affordable housing segment, which is the place where most of the demand is coming from. As the economy picks up, the development from rural to urban will quicken. So there will be a significantly increased demand for houses.

To sum it up, 2018 will pose a few difficulties for the real estate sector to the extent at which home deals and costs are concerned. Builders will turn out to be more acquainted with GST and RERA and should enable them to design their projects better. Home sales may remain weak. Property costs may be under strain due to high unsold inventory and even more pressure in the luxury housing segment in places like NCR and Mumbai.

3 thoughts on “Indian Real Estate Industry in 2018 – Opportunities and Challenges

  1. The benefits of Goods and Services Tax (GST) are quite big. Providing input tax credit will bring the developer’s cost down, which is a positive outcome of GST on under-construction property. Also, the reduction in number of taxes will benefit the home buyers.

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