Impact of China’s realty market on the Indian real estate

Investors in China are looking at the Indian market as it is emerging rapidly. This will in turn have a positive impact on the Indian real estate market. It is bound to have further growth as well. Increased consumer spending largely assists urbanisation with more focus on infrastructure. This paves way for demand for both residential and commercial properties. 

The Indian realty market is comparatively going strong. This is corroborated by facts. According to reliable reports, India is the second largest country for steel production after China. The collapse in the Chinese property market will also reduce commodity prices which will eventually benefit India. The Indian real estate market has a great opportunity at its doorstep since it has grown rapidly and has proven resilient in the last two years despite the global crisis. 

Ever since the pandemic, work-from-home opportunities have become a norm, the need for a roof over the head became more evident. Add to that the income levels are on the rise consistently. This will lead to an increase in domestic demand. Also, huge investments in infrastructure and rapid urbanisation are all leading to an increase in demand for buying homes. 

This is happening due to the reforms in the real estate sector. Post the pandemic, it was observed that the rates have been raised on high-end and luxury properties from individuals and Non-Resident Indians (NRI) having a much higher net-worth. Their purchasing power is probably connected to the nosedive of rupee value.

The urbanisation factor

While the Real Estate Market in India seems confident, it is significant to find the right balance between growth and sustainability, and know the difference between the two. The government has also taken note and are taking necessary measures to maintain equilibrium. The government’s focus on building highways and other infrastructure is leading to urbanisation. The increase in consumer spending has created a demand for both housing and commercial real estate in India. The government is also boosting the affordable housing segment that will give a fillip to the market sentiments and at the same time appeal to the affordable home category which has been in high demand for a while now. This will help in improving the market condition within a few years. To put it in a nutshell, as of now, the Indian realty sector appears to have a solid foothold. With these results, it seems unlikely that the industry is in, or headed for, a crisis. Having said that, a lot depends on the continuous upward progression of the Indian economy. The basic takeaway from the Chinese crisis is that Indian developers should reconsider business strategies to make the industry stronger by taking all the financial risks into consideration so that Indian realty markets can avoid China-like situations.

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Plotted Developments Are Trending In The Southern Markets

Plotted developments not only offer flexibility and ease of designing homes based on your preferences, but also provide higher returns over the long term. Hence, the demand for independent homes in southern cities has accelerated over the last couple of years. Read on

In Southern India, land has re-emerged as a key investment asset class over the last few years. While the preference for plotted development has always been there among the local populace in southern cities, the pandemic accelerated the trend of owning plots, believe experts.  

What are the reasons for the increase in demand for plotted development? What are the factors one should keep in mind before making such an investment? Here are detailed insights.

The demand drivers
One of the key reasons for investors’ interest in plots are the higher returns observed in the last few years when compared to any residential apartment. According to a report released earlier this year, during 2018-2021, Hyderabad witnessed the most price appreciation in plots (clocking 21 per cent CAGR).

In Chennai,, the rates of residential plots grew at a CAGR of 18 per cent between 2018 and 2021, and the residential land prices in Bengaluru increased at a CAGR of 13 per cent in the same period.

“The steady rise in demand for plotted development can also be attributed to the following factors:

• With the influx of established developers, homebuyers are now more aware of the concept of plotted developments replete with world-class amenities that are at par with the offerings of several high-rise apartment communities;
• Since the pandemic, there has been a growing preference for developments with low-rise  independent homes, which are spacious;
• Earlier, plotted developments were far from urban centres and were looked upon as long term investments to capitalise on upcoming growth corridors;
• However, Grade-A developers with greater financial resources have started working on plotted developments in emerging markets closer to the city, attracting more potential buyers,” elaborates Praveer Gill, executive VP of one of India’s largest real estate development companies.

The pros and cons of the investment
Over the last few years, southern markets have become highly desirable residential destinations because of the burgeoning job market, robust growth in infrastructure, greater connectivity, and vibrant culture. 

“The affordability of plots in these cities is a key factor driving individuals towards investing in land, an ever-appreciating asset. The pandemic has underlined the need for an independent home with no shared corridors, elevators, stairways, and common spaces. Additionally, investing in plotted developments is highly lucrative because they offer unmatched customisation and flexibility to the buyer. Furthermore, an investor can also enter into a joint venture agreement under RERA with a real estate developer to build a residential or commercial development on these plots. Lastly, this asset class offers lucrative investment opportunities to individuals who rent their properties as vacation homes,” explains Gill.

While buying a plot provides customers with several advantages, there are also certain drawbacks associated with the investment.

“The risk of encroachment is quite high here as a project without fencing or security can be encroached easily. Besides, the tax benefit is available for buying a home; but no such provision is offered for interest paid on money borrowed for the purchase of land/plot. Also, while banks offer loans on homes, plots are considered riskier assets and banks show hesitancy in financing them readily unless purchased from government authority. Many a time, plotted developments also lack basic amenities such as proper approach road, water and electricity supply, and sewage,” mentions Shrinivas Rao, CEO-APAC, Vestian. 

Developers upbeat about this segment 
The pandemic has been a catalyst for changing customer behaviour and preferences. 

Today, homebuyer needs are defined by comfort, convenience, privacy, and security. Hence, developers are now focusing on reducing the demand-supply gap. 

“Consumers are willing to travel that extra mile for the independence from shared walls and the comfort of having luxury spaces like gardens, terraces, and foyers while being surrounded by the convenience of being in the city. The accelerated expansion of urban centres and infrastructure has significantly influenced this trend as well. Hence, more realty players are making a foray into this segment,” adds Gill. 

Developers are also actively venturing into plotted development projects as they provide a relatively better internal rate of return with limited risk.

“For developers, plotted development is a smart strategy to liquidate land banks for raising working capital. Another reason could be a quicker exit from the investment within a shorter time-frame as the project cycle of plotted development is shorter when compared with apartment projects,” says Rao.

In conclusion
The desire for bigger homes is taking precedence as people now seek enhanced and customised spaces. Also, buyers are open to relocating to the outskirts if they offer the right product in their budget.

Further, the location of the property is no longer a determinant, as many companies have embraced hybrid work culture in light of the pandemic; hence, experts believe that plotted developments would continue to account for a steady demand momentum going forward as well. 

Before you buy a plot, do your due-diligence. Here's how:

• Title of the land: One must do a thorough legal verification of the land title as there is a higher probability of litigation in comparison to apartments. There are various approvals and certificates (title deed, release certificate, EC, property tax receipts, etc.) by local authorities that need to be acquired. Hence, approach a lawyer and vet all the documents. Also, one must check and verify the land-use zone as per the city masterplan (whether it is for residential or commercial use);
• Locality check: Location coupled with easy connectivity to major areas are among the major factors that buyers must keep in mind while buying plots. In addition, buyers must do their research and see whether or not any major infrastructure project/s are coming up in and around the area. Infrastructure projects play a significant role in boosting the real estate prospects of an area and hence will enable one to get a high return on their investments. 
• Individual plots vs. those within gated communities: A property within a gated community will provide access to all the amenities similar to that offered by an apartment complex and would be more secure. In the case of independent plots, the risks are higher, especially in terms of safety and security and easy access to amenities.
• Financing a Plot:   It can sometimes be difficult to avail of loans for purchasing a plot when compared to apartments. Also, the criteria for availing of the land loan are different from that of an apartment. Besides, the loan-to-value (LTV) ratio is lower for land loans and there are also stricter terms and conditions laid down by the lender. Hence, one must verify the same with their lender.   Team Houseliv

Housing Becomes More Expensive, Mumbai Least Affordable, Says RBIAmong the four metro cities, Chennai

Among the four metro cities, Chennai and Delhi stood at the second and third positions in terms of least affordable cities.

Housing  affordability in the country has worsened over the past four years, according to a report by the Reserve Bank of India. The house price to income (HPTI) ratio - which indicates housing affordability - in 13 cities across the country increased from 56.1 in March 2015 to 61.5 in March 2019. Mumbai is the least affordable city, according to the RBI report. The house price to income ratio for Mumbai stood at 74.4 compared with 64.1 in March 2015. The overall increase for all 13 cities stood at 61.5 in March 2019, from 56.1 in March 2015, according to the report.

Among the four metro cities, Chennai and Delhi stood at the second and third positions in terms of least affordable cities - with HPTI ratios of 58.6 and 58.5 respectively -  while Kolkata emerged the most affordable city (HPTI ratio of 56.5).

The RBI's quarterly residential asset price monitoring survey, which was conducted in  Mumbai, Chennai, Delhi, Bengaluru  Kolkata, Pune, Jaipur, Chandigarh, Ahmedabad, Lucknow, Bhopal and Bhubaneswar, revealed that Bhubaneswar was the most affordable city in the country with the cheapest real estate.

The RBI report also highlighted that home loan eligibility, as measured by the EMI-to-income (ETI) ratio, remained relatively steady in the past two years. However, Mumbai, Pune and Ahmedabad recorded higher median ETI ratios compared to other cities.

The RBI report projected a worsening housing affordability going forward. 

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365 homes a day! Mumbai property registrations hit 10-year high: Why real estate is set for a turnaround

REAL ESTATE INDIA

Property registrations in India's biggest real estate market scaled to a new 10-year peak in October. The number of housing units registered is up 8% year-on-year at 8,576 even though the Maharashtra government has now increased the stamp duty to 5% from 2% last year. Even compared to the pre-pandemic year of October 2019, registrations are 48 per cent higher this time around. Sequentially, the registration of housing properties is up 10% compared to September 2021. The registration data includes properties bought in both the primary and secondary markets. As India emerged from the first lockdown in 2020, the Maharashtra government in August 2020 said it would temporarily reduce stamp duty on housing units from 5% to 2% until 31 December 2020. Stamp duty from 1 January 2021 to 31 March 2021, was at 3%, following which it was increased to 5%. The stamp duty cut gave a huge boost to home sales. The total government revenues realized through sale registrations equaled Rs 550 crore, which was 136% higher on year. The registration of housing properties stood at 7,929 units during October 2020.

Get this: Over 2,400 residential properties—or 356 homes a day—were registered in Mumbai in the first seven days of the Navratri, the nine-day period that began on October 7, revealed data from Knight Frank. This period is considered an auspicious time to make big-ticket purchases. The daily registrations rate in previous months of August and September was 219 and 260 units, respectively.

The historically low interest rate on home loans, the lucrative festive offers along with flexible payment options and better consumer awareness has transformed Mumbai's real estate sector into a buyer's market.

"Month-on-month too, registrations are up 10%, signifying buoyancy in housing demand. They are also higher than the average of 6,000 monthly units registered during CY17-19. The overall value of units registered in Oct-21 stood at Rs 110 billion, (up 4% MoM but down 5% YoY). We believe momentum in Mumbai housing sales will continue going ahead in the festive season," said Edelweiss Securities analyst Parvez Qazi.

"The healthy growth in the residential property registrations volume is a sign of recovering markets. A consistent increase captured in the last few months demonstrates the strength of demand in the market as this continued surge in demand is despite the roll back of the government's stamp duty demand stimulant," said Gulam Zia, Senior Executive Director, Knight Frank India.

Recently, industry body Credai MCHI in association with data analytics firm CRE highlighted that the current calendar year could be the best in the last five years. "The industry is finally seeing green shoots of revival after a flat growth for half-a-decade and we are confident that this trend will continue till the end of this year given the upcoming festive season,” said Deepak Goradia, president, Credai-MCHI.

What about pricing?

The average ticket size in Mumbai in October declined 5% month-on month to Rs 1.28 crore. This is a 13% decline year-on-year and even lower than the average ticket size of Rs 1.34 crore in Calendar Year 2019. "This indicates that even after the end of the stamp duty relief (which had boosted sales of higher-ticket size luxury units), customers have again started to gravitate towards affordable units," said Qazi.

Is the housing cycle about to turn?

According to Edelweiss Securities, after a downswing in residential real estate spanning CY13–20, the housing cycle is set for a turnaround because of:

i) Affordability: It is defined as the house price-to-income ratio and it is the best in over two decades due to a combination of of muted price appreciation, lower interest rates, rising income levels and smaller unit sizes.

ii) Unsold inventory: A steady reduction since calendar year 2016; in fact after adjusting for stalled projects, the NCR is the only region with unsold inventory exceeding 24 months.. All other areas, including the MMR have unsold inventory at 24 month or less. Pune has just 13 months of unsold inventory. A similar phenomenon is visible in ready unsold inventory.

iii) Systemic liquidity: Ample in the wake of stimulus packages post-covid-19. History suggests Indian property space flourishes in periods of high liquidity. This is because declining interest rates are not only accompanied by an improvement in profitability, but also have the potential to fuel higher demand from end users. In addition, lower cost of capital boosts asset valuation. As a result, a Lower interest rate regime historically drove outperformance of realty stocks.

iv) Government support to realty space: While Maharashtra, West Bengal and Karnataka slashed stamp duty rates, the Delhi government reduced the circle rates by 20% till September 30, 2021. This is equivalent to about a 1% reduction in stamp duty.

v) Tech boost: Accelerated hiring by tech companies is driving robust demand in tech-dominated cities.

Consolidation is evident:

The share of top developers in launches (6–26% across cities in calendar year 2011) surged to 28–78% in the first half of calendar year 2021. And their share in absorption, which was 14–22% across cities in CY11, has built up to 20–51% through H1CY21. "Since demand tracks launches with a lag, it is a matter of time before the share of organised developers in absorption jumps to similar levels as launches. Bigger, organised developers are likely to benefit from both market share gains and demand revival going ahead. That many developers posted best-ever pre-sales in FY21 in spite of the pandemic indicates bigger realty players would continue to create outsized value for shareholders," said Aditya Narain, head of research, Edelweiss Securities.

In Mumbai, the brokerage has a buy rating on Godrej Properties, Oberoi Realty, Sunteck Realty and Macrotech Developers as it expects them to benefit from revival in housing sales in Mumbai.

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HouseLiv Realty

Top 8 Indian cities record 9% on-year rise in Jan-Mar house Sales houseliv

Top 8 tier I Indian cities have recorded 9% on-year rise in residential sales at 69,697 apartments in the first quarter ended March led by activity in Mumbai region and Pu

In terms of growth, sales in Chennai witnessed maximum on-year growth of 31%, followed by Pune at 24%, Bangalore 19%, Hyderabad 18%, and Mumbai Metropolitan Region (MMR) 7%. The National Capital Region (NCR) witnessed the maximum decline of 8%.

Prices remained stable in tier I cities on both sequential and on-year basis.

During the quarter, unsold housing stock in tier I cities decreased by 7% on-year. Ahmedabad witnessed the maximum decline in unsold stock at 16%, followed by Kolkata 13%, Bangalore 11%, Pune 10%, NCR 8%, and MMR 4%, the data showed.

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While luxury housing may see a 20 percent reduction in prices, developers are likely to offer freebies such as deferred payment plans to buyers investing in the mid segment.

Real Estate

Like every other segment of the economy, the Indian real estate sector too is reeling under the deadly impact of the coronavirus pandemic. But like it is with every crisis, this pandemic too may throw up opportunities for buyers as several cash-starved developers with unsold inventory may be forced to sell at discounted prices.

While luxury housing may see a 20 percent reduction in prices, developers would offer freebies to buyers investing in the mid segment. These may range from deferred payment plans to even a free Corona insurance that may address their fears of a job loss. Affordable housing may see a moderate price correction of 5 percent and also a fall in volume.

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For instance, a villa property in Mumbai's Worli area is in the market for a few months now. The buyer had bought it for around Rs 40 crore a few years ago and was willing to sell it for about Rs 30 crore four months ago. Today, he is willing to sell it at Rs 20 crore and yet there are no takers. This is almost at a price point of Rs 30,000 per sq ft, which is comparable to a high-end property in Gurgaon's Golf Course Road.

HDFC Chairman Deepak Parekh recently said that he sees a 20 per cent drop in property prices of unsold residential inventory, and advised developers to offload their stocks to enhance liquidity position. He also cautioned developers against over leveraging, which can affect their businesses in the long-run.

A report by HDFC Securities had noted that large NBFCs expect further 20-25 percent cuts in the real estate prices and a 25-30 percent dip in volumes for the financial year 2021 along with fiscal incentives like stamp duty waivers. This shall aid demand recovery. The market may consolidate in the hands of select large organised developers with strong balance sheet and access to bank funding. JDA/JV model will continue and land buying will take a back seat. Launches will get deferred and focus will be on completing existing unsold area.

An analysis by Liases Foras has also predicted that property prices may come down by 10-20 percent across geographies, while land prices could see an even higher reduction of 30 percent.

Builders may dole out freebies

Luxury real estate projects are bound to witness a reduction in prices across the country, anything from 10 to 20 percent depending on the location, city and the demand supply situation. These are units priced at Rs 2.5 crore and above, say real estate experts.

In the mid-segment category where units are priced between Rs 1 crore to Rs 1.5 crore, there may be a slight correction as developers may instead decide to offer freebies instead of direct discounts.

What's important to understand here is that this segment is popular with the fence sitters. The builder community may try to get into a demand boosting exercise to motivate this segment to buy.

"Reduction in prices or discounts alone may not be a motivator for this segment. The developer may decide to entice them with intelligent freebies," said an expert.

Builders going forward may decide to address this segment's chief fears which include a job loss three months down the line, a probably reduction in price or "what happens if I get corona".

Experts said that real estate builders would have to think innovatively to generate cashflows.

"The biggest challenge in the market today is the revival of demand. That can be achieved either by reducing property prices, bringing down the cost of financing or mortgage rates and introducing a better tax structure for both direct and indirect taxes," said Anckur Srivasttava of GenReal Advisers.

Builders may promise a price guarantee option to boost sales. This means that if a house is worth Rs 1 crore and if prices were to come down in a few months or the buyer were to lose his job, the developer as per this scheme, decide to buy back the house from the buyer and also offer a 6 percent interest on the amount.

This could ensure that the buyer not only gets back his money but also an amount equivalent to what he would have earned had he parked his money in a fixed deposit. A win-win proposition.

Some builders may decide to offer a Corona insurance for the entire family.

"Such schemes would go a long way in addressing fears of a job loss, fear of value erosion of a property and most important the fear of contracting the disease itself," said Srivasttava.

The buyer pool may shrink going forward but discounts alone may not do the trick. Deferred payment plans without subvention may become popular.

"One may see developers coming up with deferred payment plans such as 10:90 plan which means that the buyer may have to pay an upfront amount of 10 percent and 90 percent at the time of possession. Such payment plans may also be offered for ready-to-move-in projects," said Mudassir Zaidi, Executive Director- North, Knight Frank India.

This means that the buyer may have to pay 10 percent at the time of moving in and perhaps the remaining 90 percent within a year.

The sub-Rs 50 lakh segment may also see a correction of 5 percent, say experts.

The Rs 10 lakh to Rs 45 lakh segment may also witness a moderate correction with some freebies thrown in.

"This segment may also see a volume correction because of significant demand erosion as the savings of these people have been eroded during the lockdown," said an expert.

Some experts are of the view that real estate prices have remained stable for the last five years and with time correction already having taken place, developers may not have enough head room to reduce prices.

"Homebuyers' resistance to prices is much less today. The bigger issue is that of timely delivery and quality of the product being offered," said Samantak Das, Chief Economist and Head of Research & REIS, JLL India.

Going forward, some developers may decide to offer well-designed compact units to fit the buyers’ pocket.

Developers may also offer freebies such as GST and stamp duty waivers, additional gadgets in the house such as dishwashers thrown in. There may not be enough headroom to rationalise prices as prices have remained stable for almost five years now, he added.

In 2008, the real estate market was over heated. It had short-term investors and under writers, making it a sellers’ market. The price bubble led to reduction of prices by 20 percent to 30 percent. Developers’ have had a bull’s run five year’s prior to the Lehman’s crisis and their coffers were full. They therefore had enough head room to reduce prices.

Today, it is an end-users’ market. The market has been in slow mode for the last five years due to several reasons. It is still trying to come to terms with disruptions like RERA, GST implementation and the NBFC funding crisis.

The coronavirus outbreak is perhaps the fourth 'Black Swan' event being witnessed by the Indian real estate sector in since 2016, according to a report by ICICI Securities.

Recovery after the 2008 slowdown was faster as builders had enough buffer. In the present situation, prices have stagnated or come down significantly for the last five years. Despite prices being affordable, buyers are still cautious of investing in property. Timely delivery is their main fear.

In a crisis situation like today, a developer offering a 20 percent discount would also have its own set of challenges, says an expert.

"Homebuyers are wary of buying a high-ticket item such as a house. There are serious confidence and trust issues. A developer offering 20 percent upfront discount would be looked at with suspicion. There could be perception issues. Having said that, there may still be buyers, employed with sectors that are expected to do well such as FMCG, e-commerce, telecom, pharma, insurance, who may still want to buy property post the pandemic," added Zaidi.

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