There has never been a better moment to buy your dream house – investment or otherwise.
There is a big but though. The elephant in the room is residential real estate, which is telling you not to uncork the bubbly so soon or be so lavish with house-warming party.
So, what's cooking?
The residential segment is still a big mess, as demand crawls and supply is in abundance. The sector is grappling with various issues, namely liquidity deficit in the aftermath of IL&FS payment default, high cost of capital, below-par sales and a string of stalled projects.
"The residential segment is facing serious headwinds at the moment. Though sales have started picking up, it will take some time for serious price appreciation to start happening,” said Anuj Puri, Chairman, Anarock Property Consultants.
End users are obviously rejoicing, as prices have hit rock bottom and developers are bending over backwards to court genuine buyers.
Sandeep Raina, Associate Director, Edelweiss Investment Research, says: "A full-fledged recovery in the residential space is at least 12-18 months away, given the recent liquidity crisis and slower-than-expected sales recovery. Launches have dropped drastically with many under-construction projects getting stalled due to funding issues," he said.
But it's not all gloom & doom. You can still have your share of indulgence as commercial real estate promises exciting returns, going forward.
"In the current market, commercial real estate – especially Grade A office properties – is definitely the best-performing real estate asset class. Thanks to the incumbent governments proactive initiatives such as Make in India and the thriving start-up culture in the country, demand and absorption for well-located office properties has been exceptionally high with rental yield going as high as 10 per cent in certain markets," Puri told ETMarkets.com.
And steep pricing should be no dampener there. "Investors who find ticket sizes of such properties too steep can await the imminent announcement of Indias first REIT (real estate investment trust) listings. These will operate like mutual funds for real estate and allow investors with budgets as low as Rs 2 lakh to invest in this thriving segment of real estate," he said.
Will 2019 turn out to be any bit smooth, then?
Raina says demand in office and retail sectors will continue to beat supplies, leading to lower vacancies and higher rental yields in 2019-20. Also, private equity participation is quite high in commercial assets, which lends more shine to this space.
Affordable and mid-income segments are likely to get top billing, with better sales in 2019 against the luxury category, as the government doubles down on its housing for all promise.
Puri thinks consolidation is the way forward and the industry can't avoid it. He sees a clear trend towards affordable housing by leading developers, but new project launches could fall off the curve.
When it comes to liquidity, he doesn't expect any significant improvement until at least first half of 2019. "While housing prices will remain flat, private equity players will continue to make select investment forays. Ready-to-move-in housing will take the centrestage, as do alternate asset classes such as student housing, senior living, warehousing and retail in tier II and III cities," Puri said.
The liquidity crisis that roiled NBFCs (non-banking finance companies) and HFCs (housing finance companies) almost broke the back of the sector, as accessing capital from lenders got a lot tougher. Raina is hopes for a quicker resolution can put things back on track.
"Recent liquidity crisis led to funding issue for local developers and a few big developers, due to which many ongoing projects have got stalled. A quicker resolution of the liquidity crisis is important. Theres a large mismatch between supply and actual demand in terms of unit and ticket size. Focus on right sizing and right pricing is the need of the hour to meet the large unmet demand of end users,” Raina said.
Stamp duty comes up as another layer of price to already existing high-priced units. Raina makes a pitch to rationalise stamp duty, which in turn can drive volumes to offset lost revenue for states.
The road is still not all clear. Industry players find high GST as a thorn in the crown. "High GST rates have deterred several homebuyers from buying under-construction properties in 2018, their preference is largely tilting towards ready properties only, which is exempt. The government is discussing reducing the 12 per cent GST rate on housing to boost demand in 2019. If a lower GST is approved, it will be a major boost for the residential segment," Anarock chairman said.
From a policy perspective, the government may have shown a clear intent to remove bottlenecks, with a clutch of reforms such as GST and IBC (Insolvency and Bankruptcy Code). RERA (Real Estate Regulation Authority) is also a case in point, but its implementation leaves a lot to be desired and remains patchy so far.
"Even after one-and-a-half years since its implementation, it falls way too short of the mark. As it stands now, there are quite a few states still in the process of notifying RERA rules, while there are others where buyers have been continuously complaining about dilution of the notified rules," Puri pointed out.
Elevated cost of capital to finance projects is another pain the neck for builders and developers. In absence of bank finance, developers are turning to PE (private equity) funding and other non-formal ways to bankroll land purchases, ultimately pushing up cost of capital drastically.
With pan-India property sales looking a pale shadow of its former self, Bengaluru is a whiff of fresh air. In the commercial space, the Garden City tops the pack that is likely to see an uptick in 2019 from both demand and supply points of view, with NCR and Hyderabad following closely.
Going by Anarock data, Bengaluru saw the maximum absorption at nearly 12 million square feet in 2018, an annual jump of 37 per cent. The trend is likely to continue if the macroeconomic indicators stay favourable.
"For the past several quarters, sales have exceeded launches in the top seven cities and unsold inventory has come down to nearly 5,00,000 units as of H1 of 2018. Unsold inventory remains the highest in the NCR region, followed by MMR region and Bengaluru," Edelweiss' Raina said.
"Bengaluru and Hyderabad markets are expected to continue to do well with consistent sales momentum," he said.
So, it's advantage commercial realty. If you happen to be a real estate investor, you might ask, what's in it for me?
Puri's prescription is, if youre focused on residential real estate – which most investors are because of lower ticket sizes compared with commercial properties – keep your expectations limited and maintain a long-term horizon of at least 5 years. The residential segment will take time to pick up.
Office and retail sectors are making all the buzz. "For an investor with a minimum 3-5 years of horizon, one can look at a few micro markets for residential real estate investment, as the shift takes place from unorganised to organised segments. Office and retail sectors can be considered good investment options for yields to the tune of 10-13 per cent," Raina said.
Khushru Jijina, MD, Piramal Capital and Housing Finance, has the last word. "Calendar 2018 was a moderate year for the real estate sector with various external shocks like demonetisation, RERA and GST affecting buyer's confidence across markets even though the longer-term impact of these regulatory measures was seen to be largely positive," he said.
Against this backdrop, 2019 kicks off on a subdued note in the run-up to general elections, due sometime mid next year. Keep your powder dry.