Currently real estate market in India is going through a transformation mode where growth and focus of stake holders is shifting from major towns to Tier-2 and tier-3. In coming 2-3 years, Real Estate Sector as such will see lot of fundamental shift. Basics of business will also take new shape over period of time. Few important things which market may follow/witness in 2017-18 in my opinion are :
1.) Focus on Affordable Housing as various state governments are changing policies for creation of affordable houses specially in satellite towns adjoining to metro cities. The government of India in Budget 2017 has also exempted houses sizes 60 sq mtrs carpet area from Income Tax, an major push to small size apartments in upcoming cities. The most important aspect of this exemption is that any housing project approved by local authority which has 80% of houses size upto 60 sq. mtrs. Carpet area will be exempted from Income tax. Hence, looking at FAR and population density norms, it is very much possible to create houses eligible under this scheme in major sub-urban of Gurgaon i.e. Sohna. Akivnta Developers has already planned one group housing in this locality.
2.) Focus on quality commercial assets in cities like Gurgaon, Noida, Delhi: Due to emergence of technology, start up boom, e-commerce, requirement of quality office space will increase and occupancy level in commercial projects will go up in 2017-18. Real Estate Investment trust is another important factor which motivate developer to create sizeable and quality office space in commercial hubs.
3.) Focus on organized retail space: Post demonetization, governments focus is to push to digital/ cash less economy. Organized retail is best alternative to reduce use of cash in daily needs, hence, more and more consumer will shift to these hyper retail and per sq ft. gross sales of these retailer will improve. As a result, requirement of retail space will go up in immediate future.
4.) Pressure in mid size/mid income housing: In next fiscal, the worst impact will be on mid size housing which neither qualify to be affordable nor luxury. Due to slow economic activity and decrease in creation of disposal income, there will be minimum buyer in this space. Developer need to readjust the project prices for these kind of projects particularly which are under construction. Until, buyer see substantial difference between luxury and mid segment project prices, inventory movement will be very hard in current industry scenario.
5.) Emergence of agency business: Sector has seen lot of changes in business model over the period of time. Currently, the land prices are very high and inventory movement is very slow. It means more and more capital is required by developers to execute and implement the project. Availability of quality and reasonable capital is also becoming less day by day. Hence, an agency model will emerge in future where in land owners as one stake holder, investor as another stake holders will hire developer to provide services for these stake holder. This will reduce capital dependency and land owners will get maximum return on their land. At Akivnta, we follow the same business model and to begin with, we are getting excellent response from various stake holders.
6.) Presently, home buyers pay service tax and VAT on purchase of residential units when booked prior to their completion. There are also various elements of non-creditable tax costs, like excise duty, customs duty, CST, entry tax, etc paid by the developer on his procurement side, which is inbuilt into the pricing of the units. All these tax costs add upto anywhere between 22%-25% of the price of the units. The proposed GST should replace these multiple taxes with a single tax and should also ensure smooth flow of credits through the chain. Hence, it is widely expected that GST should reduce the construction cost in the hands of the developer and thereby aid in reducing or atleast maintaining the current level of prices in the real estate sector. The only dampener could however be high GST rates (like the 27% GST rate that is doing the rounds) which will offset any possible gains on incremental credits.
This guest post is written by Manoj K Goyal, Founder & CEO, Akivnta Developers
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