Posted on 02 Jul, 2015
Recent cuts in repo rates will bring relief to consumers as they should get translated into lower home loan rates in the near future. The year started on a cautious note as the real estate industry in India continued to suffer from oversupply, low absorption levels and rise in unsold inventory along with high prices. The business confidence of the sector slightly improved with the home buyers preferring to invest in larger homes across cities.
The improvement in economic conditions along with government policies and initiatives towards increasing the purchasing capacity of the individuals will most likely pave the way for faster growth in the coming months.
The current scenario: The residential segment will remain the main stay in Indian real estate, regardless of what market conditions prevail. According to the Technical Group on Housing, India has a shortage of 18.8 million urban homes and it is estimated that every year, 10 million people are moving in Indian cities for the purpose of their livelihood indicating a latent demand for real estate in India.
However, the massive demand for homes in the country does not equally absorb as India is highly price sensitive. The greatest requirement for residential properties stems from the affordable housing segment catering to the middle-income group and the economically weaker sections (EWS) segment. The high dependence on home loans by the service class increases the price sensitivity factor even further.
This year has started on a positive note with a number of government policies and initiatives to help boost up the sector and also the absorption of the units in the Indian market.
The Reserve Bank of India (RBI) has reduced the key lending rate repo twice this year to 7.50 per cent though it is yet to be passed on the end users by the banks. The reduction in rates will increase liquidity in the hands of home buyers who can go ahead with lower costs of home loan rates.
The government recently launched three urban development schemes, namely the housing for all by 2022, under which infrastructure status has been accorded to the affordable housing segment by RBI, along with Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and the smart cities, which should augur well for the sector.
The housing for all initiative will enable stakeholders to borrow money at a lower cost furnishing a strong thrust from the demand side. The scheme will also promote affordable housing for weaker sections through credit-linked subsidy, in partnership with public and private sectors, and subsidy for beneficiary-led individual house construction or enhancement. This will help increase demand for the affordable housing segment by making home loans more affordable for the lower income group (LIG) and EWS category.
Expectations in the next six months: Last year was sluggish and this trend was prominent across prime cities and metros. As the prices rose beyond the point where investors could get their desired return, demand began to decline. Moreover, inflation had led to decreased purchasing power, affecting the financial confidence of the salaried classes in the country.
However, recent cuts in the repo rates will bring relief to the consumers, as these should get translated into lower home loan rates in the near future. The reduced cost of capital has helped banks to bring down lending rates. Action on reduction of home loan rates has been pending by some of the banks, but it will hopefully soon get translated into lower rates. This will spread a positive sentiment among buyers and investors. Many home buyers, who were earlier sitting on the fence, will now be encouraged to go ahead with their plans.
There has been resurgence in employment-driven market sentiments this year. The strategic positioning of a number of residential projects will help bring back the rhythm in the real estate market in the coming months. The real estate market will witness realignment of current market prices and price expectations of home buyers. So, the demand for quality residential projects is expected to increase in the second half of 2015.The mid-end and affordable housing segments will also record healthy appreciation in capital values in the short term.
The second half of 2015 will also focus on recovery and clearing inventory, construction deadlines and backlogs that have been accumulating in the sector for the last one-year. The overall outlook for residential real estate sector remains positive with demand for housing expected to go up in the second half of 2015. The upcoming festival season in India will also help in booting up sales in the next six months.
Conclusion: The real estate market has begun to transition from one phase of recovery to the next. With moves such as low interest rates – there will increased liquidity, which will shore up both demand and supply of real estate in India. Policies announced have provided the much-needed oxygen for the real estate sector.
The provisions made for this segment in the budgets and announcements will help the affordable housing sector and has paved the way for increased activity in 2015. The second half of 2015 will see a turnaround in real estate sector with sales of real realty projects expected to rise. The real estate sector is sanguine that 2015 will be a game changer for the industry.
(The author is managing director and chief executive officer of Tata Housing (Brotin Banerjee ))