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Causes of Realty slowdown in NCR

Posted on January 11, 2018 at 11:56 AM

As we welcome the new year 2018, we reflect on how the year that just ended was for the real estate industry. It would not be an understatement to say it was as smooth as a ride in a washing machine. The industry went through so much turmoil and the external factors; factors over which the industry had little control, impacted the industry in ways that have not been seen by any. The government took a lot of major decisions that affected the real estate industry directly, and some measures affected the industry indirectly.

If one were to pick out the top three things that impacted the real estate industry, then even a person with basic understanding of the industry will point towards demonetisation, implementation of Real Estate (Regulatory & Development) Act, 2016, and the Goods & Services Tax; that has taken over many previous tax types. Although the government has introduced many new policies that affect the real estate sector, These three have had the the most disruptive effect.

The demonetisation of ₹500 and ₹1000 notes is said to have sucked out a lot of money from the real estate sector which was to a large extent a cash based sector. A lot of transactions such as labour wages, payments to small vendors such as transporters, sand and other construction equipment and building material suppliers who are part of informal economy not having bank accounts, were paid in cash. As the builders were unable to pay them their dues due to unavailability of cash a lot of construction activity was halted. However, with the introduction of steps for banking for the poor and those without proper identification, and push for digital payments by the government is helping things return to normal.

The Real Estate (Regulatory & Development) Act (RERA) has forced developers to be more transparent and accountable for their actions. This has led to a paradigm shift in the way the market operated; from one that was led by developers to one where customer is rightly the king. While on the one hand it has forced a few developers into insolvency, it has given hopes to millions of investors and end users in the sector which is what the bill aimed to do.

The Goods & Services Tax (GST) was introduced in July 2017 and it is touted by many as one of the biggest indirect tax reform in recent times. It has been brought about to provide a level playing field to the businesses and integrate the country as one as far as taxation of businesses and industries is concerned. While there have been some resistance to the same primarily by people who either do not have proper information, or those negatively affected by it, the government is going ahead full steam ahead as it streamlines tax collection, reducing the number of forms that business owners have to fill while reducing tax evasion.

All the factors mentioned above have brought about some short term difficulties, but would benefit the real estate industry tremendously in the long run. The government has also introduced a slew of reforms besides the three mentioned above. In all around 40 other reforms have been introduced including simplifying the process of taxes, e-returns and e-refunds, and Insolvency Resolution amongst others which has resulted in India jumping up 30 places over last year in the list issued by the World bank in Ease of Doing Business. Foreign Direct Investment (FDI) has also seen an increase of 17% over last year for the period April to September 2017 to the tune of $25.35 billion. Of this, DIPP reports that construction development sector including townships, housing, and built up infrastructure was one of the major draws of the inflow. The real estate sector has also benefited after affordable housing sector was given "infrastructure status" opening the gateway to reduced financing costs and funds for reinvestment.
Going forward in 2018, it is expected that the residential sector will see prices strengthen as inventory with developers is reduced. On the commercial property front, prices are expected to see further northward movement especially in Gurgaon NCR region as the region already has vacancy rates as low as 5% in some micro-markets. On the whole both investors and the real estate industry has high hopes from the year 2018.

T and T Realty Services offers investors sound financial advice to its investors based on their financial goals and needs offering them opportunities to investment in commercial real estate spectrum of Retail Shops, Office Floors, Food Courts, Hypermarkets, or Serviced Luxury Studio Service Apartments.