Revisiting Indian Real estate and analyzing its future

real estate segmentsThe year 2016 is coming to end and as it approaches to its end, it’s time to review what happened with the Indian real estate industry and what is there to expect in the coming year, 2017. The year 2016 gave this industry some real and big changes in policies like the GST bill and RERA. Further, the decision taken by the central government of demonetization caused a huge turmoil but the Benami Transactions Act promised greater transparency for this sector.

It is highly expected that the affordable housing will come into better shape as compared to previous years. Also, REITs have promised to open this sector for small investors in 2017. As per the world investment report of 2016, India scored 4th position in terms of FDI inflows. This report was presented at the United Nations Conference for the Trade and Development. All the credits for improving the nation’s ranking on various indices goes to the government which has led India on a path to grow as a modern economy.

The Commercial sector of Real Estate industry

It expected that the demand side of office space for sectors like logistics, manufacturing, FMCG etc. will continue to display good signs of growth in 2017 as shown in the year 2016. In the coming years, the demand of office space by e-commerce or start-ups or consulting firms will rise as the need to accommodate their business will rise. Moreover, with the increased cost and the pressure of compliance will make the international banks and financial institutions to outsource more jobs in the nation. The major role played here will be done by the depreciation of the INR versus the USD and Euro.

The contracts for companies like Infosys and TCS have gone shorter, therefore; they are now focusing on leasing office space instead of buying it as compared to earlier where they preferred constructing their own campuses. The main reason for this step is that the money which is saved via leasing is again invested in business.

Once the readings for the fourth quarter of 2016 are out, the overall demand of commercial space in 2016 is expected to reach 34.2 million sq. ft. Though the availability of right space at the right location remains a concern but nearly 38 to 40 million Sq. Ft. of new area is expected to be added in the coming year. Due to the more investment is done in infrastructure, tier-II cities like Hyderabad, Pune and Chennai will fulfill the office demand in 2017.

The Residential sector of Real Estate industry

The selling of a higher number of units in the first 3 quarters of 2016 due to Pan-India trend and the slower rate of new launches have aided in reducing the inventory overhang. For the fourth quarter, demonetization will result in readings getting drastically down in comparison to first three. Due to this, the investors and home buyers who use unaccounted wealth in buying property are going through tough times. Further, those developers who are taking cash as payments are facing more liquidity crunch as compared to those accepting via cheque or bank transfer. This, in turn, will set a new benchmark for new units launched versus units sold.

The focus of Modi government has made it easier for the affordable housing to grow more. Now the developers no more fear about it and the people are also gaining confidence for this segment of the residential sector. With the luxurious and the premium housing facing slow sales, the affordable housing is expected to be the new revenue source.

The Retail sector of Real Estate industry

In terms of supply, those malls that were expected to start by 2016 will now start in 2017. By the third quarter of 2016, the net supply has reached to 2 million Sq. Ft. while the demand reached to 3.4 million Sq. Ft. Moreover, the demand got twice the supply due to the growing need for quality vacant spaces. By the third quarter, the retail space reached to 75.8 million Sq. Ft. as many poor malls were shut down or were refurbished into shopping centers and office buildings. The coming year will witness high mall space going fully operational with high levels of activity. The activity slowdown that rose after 2014 and ended in 2016 is expected to grow in 2017. The reason behind the increasing activity is due to the increasing demand on the 3 segments of retail – F&B (food and beverage), apparel, entertainment & cinema.

In the year 2016, a new way of retailing – the Office-Retail Complex (ORCs) attracted the developers and the retailers. This format offers a higher profit with lower rents for ground floor spaces as compared to what is being charged at premium malls. Also, it provides the retailer with guaranteed viewership and larger footfalls during weekday than malls. In addition to this, many brands are further looking to expand activities of production in the country which will enhance this section.

The demonetization has affected the retailers who took a 25 percent hit as the domestic consumption was largely impacted. This hit was much higher in the tier-II, III cities as they had a higher volume of cash transactions. By the second quarter of 2017, it is expected that the business will become normal until any new policy is not announced. Moreover, if GST is implemented in a well-planned manner then the retails section will get higher benefits. But if implemented in a poor manner then it could create a chaos too.

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