Economic Evolution

31 Oct 2017 Editorial Team

The landmark decisions taken in the past year will be constructive for the real-estate sector in the long run, reasons ANSHUMAN MAGAZINE. In many ways, last year was a year of landmark decisions - a year of constant economic evolution with the government clearing long-pending legislations and announcing new, encompassing policies. It has been particularly constructive for the real-estate sector with sweeping measures introduced to improve transparency and accountability, thereby prompting investment and end-user activity. Several steps taken by the government in recent times - from demonetisation, RERA and GST to Real Estate Investment Trusts (REITs) -have all been implemented to improve ease of doing business as well as increasing investor confidence. After implementation, these policy changes are likely to attract more institutional investments into the Indian realty market - from domestic and overseas institutions. Demonetisation The Indian Government cancelled the legal tender denomination notes of Rs 500 and Rs 1,000 issued by the RBI with effect from November 8, 2016. The impact is being seen everywhere, and on everyone. The residential sector saw a marginal dip in land and secondary transactions; there was a dip in home loan rates that might spur end-user demand. The retail sector has demonstrated resilience and is on a growth path; however, sales of luxury goods are likely to see a short-term dip for one to two quarters. On the office sector front, with a possible shift in investor interest from residential to office, institutional funding may increase. All in all, the move will improve transparency and lead to a boost in the confidence of investors as well as developers. RERA The much awaited Real Estate (Regulation and Development) Act or RERA - covering both residential and commercial realty segments - was passed in March 2016. Although its actual implementation can only be effective once all states create their respective state-level authorities, effective implementation can be a game-changer for the real-estate and construction sector going forward. It has been among the key measures the government is trying to implement for the development and regulatory transparency of the real-estate sector in India. Indeed, the Act not only helps regulate the sector and promote transparency, but could also facilitate greater volumes of domestic and overseas investment flows into the sector. The confidence of homebuyers in the property market is also likely to revive as a result of the same. RERA mandates the registration of real-estate projects and directs developers to delineate the functions and duties of the promoters, setting out penalties for non-compliance. In view of the slowdown in the housing sector, the Act is expected to be a significant sentiment booster for end-users and investors alike. The Act will bring credibility to the sector in the long run. This is further likely to open up funding avenues and bring down lending costs. The sector will undergo some major changes such as consolidation of players and increasing incidences of JVs. Overall, with a few modifications, the Act could prove to be a landmark legislation, resulting in a radical shift in India's real-estate dynamics. GST The constitutional amendment for early implementation of the landmark Goods and Services Tax (GST) has been India's biggest structural reform in decades. The landmark regulation will remove a plethora of indirect taxes and establish India as a single, unified market. It must be considered that the sector has linkages with almost 250 ancillary industries such as cement, steel, and concrete, among others. Any adverse impact on these key input industries may also have a negative impact on the real-estate and construction sector. Real Estate Investment Trusts (REITs) Yet another game-changing policy initiative has been the government's announcements on REITs. Although the government released the finalised guidelines for the establishment of REITs in India in late 2014, concerns regarding double taxation led to a delay in implementation. These issues were finally addressed in 2015 and further clarifications were provided in the Union Budget 2016-17 to expedite the launch of the country's first REIT. Initially, REIT portfolios in India are likely to consist of commercial office and retail assets. The commercial REIT-ready space in the top seven cites alone is about 200-300 million sq ft. About half of this REIT-ready stock is owned by leading real-estate developers who have been acquiring investable assets across these cities over the past few years. With a compelling need for additional funding mechanisms, the effort to allow REITs is yet another step towards the organised development of the sector. About the author: Anshuman Magazine, Chairman-India and South East Asia, CBRE, is responsible for 29 offices (including affiliates) and over 10,000 employees across the region. With over 22 years at CBRE, Magazine pioneered the entry of professional real-estate consulting services in India. He continues to be actively involved in various industry bodies including RICS, AMCHAM, APREA and CII's National Council.