NDA’s Win to Double Institutional Investments in Real Estate to US$ 10 bn in 2019
- Ramesh
Nair, CEO & Country Head, JLL India
·
Continuity and stability in governance to bolster real
estate sector
·
Mid-market housing to drive residential demand to new
highs
·
Country to witness more REIT launches
People of the world’s largest democracy have given
their mandate to the Government for another term. After half a decade, we now have
a glimpse of a ‘New India’ that the Government envisioned for us when it came
to power in 2014. While we witnessed the implementation of key reforms during
the first NDA regime, strengthening of the overall economy is what is expected
with the continuance of those reforms. Looking back, we realize that the two
words that perhaps rightly sum up the contribution of the government are continuity
and stability.
These measures would directly impact the real estate
market. Segments including residential, office and retail have emerged stronger
as a result of the developments so far. Due to renewed focus on globalization
and industrialization, emerging sectors like warehousing has come up strongly.
The growth story until now
The Government introduced the Real Estate (Regulation
and Development) Act (RERA), a landmark reform in 2016. It also introduced the much-needed
Goods and Services Tax (GST) in 2017. Collectively, these reforms have had a significant
impact on the real estate sector. These have managed to bring in the much-needed
efficiency and transparency in the system, albeit the industry witnessed
teething issues during the initial phases of their implementation.
For the residential segment, RERA has played a
level-playing field among homebuyers and the developers. Consequently, India’s residential sector saw
rejuvenation after an initial challenging phase. With regulation reinstating homebuyers’
confidence in the segment, markets witnessed robust recovery in sales in 2018. While
sales went up by 42% vis-a-vis the sales in 2017 new launches grew by 53% during
the period, reflecting optimism and commitment of developers catering to the
segment. Further in the January-March quarter of 2019, sales grew by 28% as
compared to the corresponding quarter in 2018.
The
buzz around affordable housing has gained much momentum and has received utmost
focus with the aim of ‘Housing for all’ by 2022. The Pradhan Mantra Awas Yojana
(Urban) allocated Rs 4.6 lakh crore during the last five years resulting in the
construction of 1.8 mn homes. As per JLL Home Purchase affordability Index (HPAI)
study, home affordability increased significantly in the last five years on the
back of rising incomes and stable real estate prices.
Sales
are likely to receive a further push with progressive policies of the
government. During the first quarter this year, the government further lowered GST
rates on affordable homes to 1% from the earlier 8%, without input tax credit
(ITC). The GST on projects under construction, which are not under the
affordable housing segment, was reduced to 5% from 12%. The rate revision
augurs well for homebuyers as the process of claiming the ITC under the former
system was complex.
While the government’s
positive measures have helped in recovery of residential segment, the steps
have also put India office and retail segments, and emerging segments such as
logistics and warehousing on a global map.
Reforms linked
to the ease of banking and e-commerce, digitisation, and other related initiatives
by the Government over the last five years have contributed to the growth of
retail and office markets. The progressive modification of REIT (Real Estate
Investment Trust) regulations in the country and their subsequent
implementation has rekindled the interest of several institutional players into
the India market.
India’s
office market that has 541 mn sq ft of Grade A stock has seen a robust annual
net absorption of 30 mn sq ft over the last four years (2014-2018). In 2018,
the office absorption exceeded 33-mn sq ft, with an expectation for strong
absorption during 2019, at 38-mn sq ft. With commercial office space emerging as
the most favoured investment avenue for institutional investors, capital flows have
increased from US$ 1.6 bn (2009-13) to US$ 8.2 bn (2014-18). Constructive REIT reforms
since 2014 led to the successful listing of Blackstone-Embassy REIT in India. JLL
has estimated that Indian office space holds a potential REIT able space of 294
mn sq ft. We expect more REIT launches in 2019. For institutional
players, newer business around Co-living, Flex-spaces and PropTech are opening
up, giving much hope and confidence in the India growth story.
On
the back of structural reforms such as granting of infrastructure status and
GST implementation, the Indian warehousing and logistics sector is set to touch
a stock of 344 mn sq ft by 2022, more than double the current capacity of 169
mn sq ft. The segment would attract nearly US$ 10 bn investments over the next
4-5 years.
The NDA
Government’s efforts to improve the ‘Ease of Doing Business’ is evident from
the World Bank
Doing Business Report (2019) rankings published in the last quarter of 2018,
where India ranked 77th among 190 countries assessed on the Index.
This has been a significant improvement from the previous performance.
The impact
of reforms has been reflected in the number of investments received by the real
estate sector. Of the total institutional investments of US$ 30 bn during
2009-2018, US$ 20 bn was invested in 2014-2018. During the same period, the
share of foreign investments more than doubled to 70% in 2018 from 31% in 2009.
We are confident that institutional investments in 2019 will nearly double
to US$ 10 bn as compared to 2018.
Real estate
sector has now high hopes from the new Government that has come to power with
thumping victory. We expect the Government to uniformly implement RERA regulations
across the states to improve buyers’ confidence. It should also create a single
window clearance mechanism at the National level for easy approvals. Government
should also work to release the public land holding for the creation of
additional affordable and mid-income housing. The need of the hour is also to significantly
lower interest rates, thereby, improving affordability, liquidity and boosting
housing demand.
On
the back of robust policy measures implemented over the last five years, we
expect the growth momentum in the real estate sector to continue. The
continuity of reforms for the next five years is sure to auger well for the
economy and real estate sector.
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