The Indian housing market has not seen very significant momentum in 2019 as the last year was not eventful for the sector in terms of any appreciable sales growth and investor interest. Subdued sentiments of home buyers, liquidity crisis due to the non-banking financial company (NBFC), lackluster investment appetite and the global economic slowdown overshadowed all possibilities for the overall housing growth in 2019.
The liquidity crisis gave no respite to the housing sector and dented any substantial growth during the year. Homebuyers continued their battle to get their dream homes, dragging some big builders to insolvency court. Private equity inflows into this sector remained subdued, with major PE funds focusing on the commercial segment.
Housing sales traction could not pick up across the country and remained slow with large unsold stock in Delhi-NCR, Mumbai-MMR, and Pune, resulting in surplus supply. The maximum unsold inventory comprised of high-end, luxury units or those located in the periphery with poor infrastructure. 2019 saw a decline in sales during the second half of the year, compared to the first six months of the year.
In 2019, the performance of the housing sales continued to be only modest due to low subdued demand, unrelenting liquidity crunch, high inventory overhang, and weak affordability. According to a report by Anarock, housing sales in 2019 saw a modest rise by a mere 5 percent annual growth to 2,61,370 residential units in 2019 across seven major cities compared to 2,48,310 units in the previous year.
However, affordable housing remained upbeat in an otherwise dull residential property market in 2019 due to multiple government sops throughout the year. There was a surge in demand for affordable homes priced up to Rs 45 lakh, driven by incentives like lower goods and services tax (GST) of one percent and interest subsidy under the credit-linked-subsidy-scheme (CLSS), etc. Moreover, first-time home buyers were given further tax deductions amounting to ₹3.5 lakh in a year on interest amount of home loans below ₹45 lakh availed within FY 2020 end.
According to a report, of the estimated 2.3 lakh new unit launches in 2019 in the top seven cities, nearly 40 percent or approx. 92,000 units were in the affordable segment, mid-segment with a 33 percent share and the luxury and ultra-luxury segments accounted for the least share with 10 percent or approx. 23,000 new units.
Some smaller real estate developers in the Indian housing market fell off the grid or collaborate with big players to stay afloat due to extreme financial constraints. Some other developers in this segment struggled to stay viable due to poor sales and an acute liquidity crisis. Housing sales and revenue growth consolidated towards some branded developers performing exceptionally well or those developers who are either part of big corporate players with healthy balance sheets or have a decent track record in the execution of projects in 2019.
This happened because homebuyers continued to rely on those developers with a proven and established track record of on-time delivery of residential projects. As per research by Anarock, the housing sales value of India’s top nine listed players touched ₹108 billion in the second and third quarters of 2019.
Another study by ANAROCK revealed that the price gap between ready-to-move-in and under-construction homes in the top 7 cities reduced to a mere 3-7 percent in 2019. While NCR recorded the least price difference between ready-to-move-in and under-construction homes at 3 percent, Pune had the highest price difference at around 7 percent. Developers are not willing to hike prices of ready-to-move unsold housing stock in a market of subdued demand which can further dampen the consumers’ sentiments.
According to a report, average housing prices in 2019 maintained the status quo across the top seven cities, with 01 percent yearly gain in MMR, Pune, Bengaluru, and Hyderabad. NCR and Chennai saw no change at all.
The Sale of residential properties increased only marginally despite the plethora of steps taken by the government to revive the struggling real estate industry in 2019. It announced several measures, including the creation of an alternative investment fund (AIF) of Rs 25,000 crore for last-mile funding of stalled residential projects, sharp cut in GST rates for under-construction flats and tax incentives to revive the real estate industry.
The announcement of the AIF of ₹25,000 crore to facilitate the completion of stuck affordable and mid-segment homes was a big boost for the housing sector. This fund which seeks to complete over 1,500 stalled housing projects comprising around 4.5 lakh units, would be key for revival of the housing sales growth and demand.
Although these policy interventions have not shown any significant growth in sales in 2019, they have boosted the confidence of India Inc. and the affected sectors. It also reflected the importance the government gave to the real estate sector. However, the seeds sown in 2019 may bear visible fruit in 2020 and bring relief to lakhs of home buyers.
Impacts of the real-estate reforms
The Real estate sector saw several progressive policy reforms with a massive and positive impacts on the industry in the last couple of years including the introduction of GST, the launch of RERA and the grant of infrastructure status to affordable housing properties.
The RERA (Real Estate Regulation and Development Act) was introduced in the year 2016 to bring transparency and regulation in the real-estate market and to protect the interests of buyers. In 2019, the results of the RERA shows that it has increased transparency and improved accountability as it is gaining firmer ground with over 40 percent growth in project registrations by the builders. Now, builders are seen shifting their focus on project completion while new launch plans have taken a backseat.
The GST was introduced in 2017 with the ideology, “One Nation, One Tax.” and today the impact of GST remains largely positive. To make under-construction projects more attractive, the government slashed GST rates to 5 percent without ITC and 01 percent in the case of affordable homes.
RBI reduced the repo rates by a significant 135 bps in key benchmark lending rates that softened home loan interest to around 8 percent all through 2019 and mandated commercial banks to link home loan rates to it.
The government decided to ban the subvention scheme, under which builders used to pay interest on home loans on behalf of home buyers. This was a major step towards safeguarding home buyers’ interest. Those measures fell short in reviving the sector because of a severe liquidity crunch driven in large measure by the NBFC crisis.
The Outlook Of Indian Housing Market in 2020
As we have entered into the new year 2020, homebuyers can expect to see on-ground improvement in Indian housing market. This year is expected to infuse growth in the sector as a private investment could increase. On the other hand, the impetus given to the residential sector is expected to yield positive results as some large stuck realty projects will be revived by the government’s Rs 25,000 crore AIF scheme. This year the real estate sector will reap the benefits of structural economic policy reforms introduced to bring financial discipline, accountability, and transparency in 2019.
Rs 25,000 crore Alternative Investment Fund for stalled housing projects
The year 2020 is likely to see some stuck residential projects getting revived by government stressed funds of Rs 25,000 crore. The maximum pain has perhaps been experienced by the residential sector over the last few years due to the unrelenting liquidity crisis due to the ongoing NBFC debacle. The resultant liquidity crisis added to the woes of the housing sector until the government created an alternative investment fund worth Rs 25,000 crore for last-mile funding of stalled housing projects. In 2020, it is this fund that is expected to provide the much-needed relief and help in the timely completion of stuck residential projects due to the liquidity crisis, thereby improving the buyers’ sentiment.
Availability of more inventory in the market
The housing sector saw some hope of recovery in the second half of 2019 as the government stepped into to solve the liquidity issue by creating a stressed fund. Now, builders would find financial help from the government through its Rs 25,000 crore alternative asset fund to complete their stuck residential projects. Consequently, a large number of stalled housing projects will be ready to be delivered in India’s major housing markets in 2020.
Value-added residential homes offered by builders
This year, branded players may gain more strength and developers with institutional partners will have the financial muscle to invest in projects. The leading and most trusted developers are looking to provide their valued home buyers with added value and holistic living experience. Several developers have strived to innovate by offering homebuyers theme-based projects to choose for their lifestyles like comfort homes, senior citizen homes, and more to enhance the value proposition of their offerings. Furthermore, builders will have to try to offer a little more than the others to stay competitive and attract more customers.
The rise and demand for emerging micro-markets
In 2019, property prices saw a marginal rise in the top seven metros across the country which includes NCR (National Capital Region), Mumbai, Chennai, Bengaluru, Pune, Kolkata, and Hyderabad. However, the emerging micro-markets saw a fair rise in residential property prices due to the availability of huge land parcels at affordable prices, infrastructure, and economic developments. Developers can construct high-quality residential homes and townships at competitive prices, compared to other metro cities.
Therefore, more and more Indians are looking at Tier-II emerging cities as these cities not only present an affordable alternative to the metros but also have the infrastructure and other factors working in their favour.
Buyers’ sentiments are set to get a boost in 2020 due to many policy initiatives are taken by the government in the past couple of years and hopefully, these positive steps would trigger fresh activity in the housing market. The major shift in the residential market will again be the increase in demand for mid-segment and affordable housing as luxury and ultra-luxury segments remained limited to end-user interest. Completed units, which are exempted from GST and also risk-free, will also be in much demand.
Homebuyers can have a positive outlook and be hopeful that the Indian housing market would revive in the year 2020. Residential property prices are likely to remain stagnant and new launches will remain low. Current trends indicate that 2020 will hold promise as the positive impacts of various government measures kick in and housing sales could see improvement. Those willing to make a move in this market would certainly reap the benefits of low-interest rates and high ready-to-move-in the housing stock.
What Is The Prospect For The Indian Housing Market In 2020?
Ajay Verma is a founder and writer of The Housing World, a real estate and mortgage news website. He brings with him 20+ years of rich experience in the real estate and mortgage industries. He has worked in senior roles in Delhi and NCR in the above-mentioned sectors.