The real estate market in India is undergoing a significant sea change. The last few years have witnessed a complete change in the buying pattern of the investors. The real estate market which used to be the best place for parking unaccounted wealth, which also generated a high return, has been chocked to a large extent due to a slew of legislations like DEMONETIZATION and the BENAMI PROPERTY ACT.
In the past, the primary reason of real estate being the choice of investment with the higher & middle income group was due to the fact that it could soak up a lot of cash and also offer higher returns on investment as compared to the banks and Mutual Funds.
Since RERA made it mandatory for the builders to have all the relevant permissions & sanctions in place before going ahead with the booking of properties, investors have been avoiding pre-launch stage investments. This used to be a major source of finance for the builders. This, in turn, precipitated into a huge crisis for the builders who used to sell inventories beforehand and invest the money received through these bookings in big parcels of land for future projects and also gain easy funding from property appreciation. This led to many builders defaulting on their delivery commitments to the customers for already sold properties. These factors led the potential investors turn away from the real estate market.
The oversupply of residential property is another reason likely for the slump being witnessed by the real estate markets. Tier – I cities like Delhi/NCR, Bangalore, Mumbai etc. have surplus inventories as per estimated demand of next five years. With the returns on investment being negligible to nil and the rental returns being only 2% – 3% of the property value, the middle income group which used to buy secondary property for asset building, pulled out of the market.
The changing times have witnessed the emergence of a new generation who are always on the move, shifting jobs very fast and seldom hesitate to relocate in search of better employment opportunities. This is driving the trend of renting a home rather than owning it.
Despite all these upheavals there is a ray of hope for the real estate developers. These days, the policy of the government has shifted to promotion of low cost housing for all. Schemes like PMAY envisage providing housing for all in the urban areas by 2022.
Government incentives to both the developers & home buyers are driving the demand in the low cost housing segment. Incentives such as reduced GST rate and the PMAY scheme of government are subsidizing the interest rate paid on housing loans. Rebate on interest paid on housing loan up to Rs. 2.5 lakhs has boosted the demand for affordable homes/low cost housing.
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