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Market challenges and opportunities in real estate

14 December, 2019

The year 2019 was a mixed year filled with hope & despair for the real estate sector. The news which came on the despairing category included the reports of the economy slipping & the GDP sliding down to reach 4.5 percent. Similarly, not all fared well on the side of the residential real estate segment, as 2019 witnessed unsold inventory stocks at an all-time high, delayed project deliveries, developers strapped of cash & unproductive assets piled up in form of projects that were under-construction or delayed, amounting in losses worth $ 4.5 trillion.

The number of insolvencies also amplified, which meant that developers were unable to finish projects & meet their debt obligations, in view of the NBFC crisis, which has reached epic proportions. Moreover, government initiatives like RERA, demonetization, GST & the bankruptcy code, although much-needed, created a testing environment. & while the government did try to infuse capital into an increasingly cash-strapped sector, many feel that the promised capital is inadequate in size, given the scale of the crisis & needs to be backed by on-the-ground implementation of erstwhile announced government concessions. However, not all is heading southwards & experts are of the opinion that the second half of 2020 will witness the unfolding of growth in the residential segment.

The positives

Now, for the news which signaled that not all was heading south for the realty sector were reports about the successful launch of India’s first REIT which has given exceptional returns since its launch & the coming year is likely to witness the launch of more REITs as a credible alternative to invest in commercial real estate. There also appeared affirmative news about the demand for commercial office spaces, which was the top-ranking real estate asset class his year as both small start-up firms & big companies are attracted to this. According to the year-end assessment report by the Investment Information & Credit Rating Agency (ICRA), the outlook for the commercial real estate segment is stated to be positive for the coming year.

Meanwhile, other asset categories in demand this year were options of co-living, with students & senior citizens leading the way. Another segment that witnessed a demand was the warehousing section, fuelled by the rise of e-commerce in India. While largely dominated by unorganized players, this segment is also gaining its foothold in the market & has immense potential for growth.

Affordable housing

The affordable housing segment (less than ₹50 lakh) had an optimistic year, owing to a slew of concessions by the government in the form of tax deduction on interest amount of home loans. According to ANAROCK research, out of an estimated 2.3 lakh new unit launches in the top 7 cities across the nation in 2019, nearly 40 percent (92,000 units) were in the affordable housing segment.

Technology & digitisation

The year 2020 is set to witness the further expansion of Artificial Intelligence with tools like virtual reality being used for giving guided tours & the use of blockchain technology in financial transactions. The future of the real estate sector in the coming decade appears exciting as property transactions will move beyond the simple business of buying & selling & will include the ever-changing digital landscape & consumption patterns. Through the use of virtual reality technology, it will become easy to keep track of the status of projects under construction. The use of big data & machine learning algorithms will give professionals a more accurate prediction about prospective investors & customers.

Hopes for 2020

The year 2019 was a time when attempts were made to revive the ailing real estate sector. While the government tried to boost the supply side, much needs to be done in 2020 to boost demand & the government needs to initiate bold fiscal measures to restore the slide in GDP numbers. In the coming year, it is expected that the effects of the structural reforms taken in the past with a view to bring fiscal discipline, accountability & transparency will start bearing fruits. Meanwhile, other remedial actions like the stress fund & cut in corporate tax are expected to go a long way in turning around positive net-worth companies & reduce NPAs.

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