Last
year, India’s real estate sector saw two major reforms come into force -- the
Real Estate Regulatory Authority (RERA) and the Goods and Services Tax (GST).
While a landmark tax such as the GST is expected to have far-reaching
implications for sectors across the economy, its impact on real estate as a
whole is likely to be a mixed bag. The complete impact on construction costs is
likely to unfold over the coming months. However, aligning with the ‘Housing
for All by 2022’ vision, projects launched under the Pradhan Mantri Awas Yojna
(PMAY) have been kept out of the purview of the GST.
For
under construction properties, the government has allowed one-third of an
apartment cost to be deducted towards the transfer of land and GST at the rate
of 18 percent to be paid on the balance amount, which brings the effective GST
rate on under-construction properties to 12 percent. While occupation costs are
likely to inch up marginally as the 15 percent service tax has been replaced
with an 18 percent GST; completed properties as well as rented apartments have
been kept out of the purview of the GST.
Although
one may argue that GST works best in an organized economy, where the supply
chain is streamlined and value additions at each step are clear, implementation
of GST could be the first step towards India’s economy becoming more organised.
Undoubtedly,
there will be short-term disruptions, but in the long term, it is likely that
the benefits of efficient supply chains and lower compliance costs will
eventually trickle down to make the reform the “shot in the arm” for businesses
in India.
GST
will help logistics players achieve supply chain efficiencies, resulting in
consolidation in the warehouse segment and entry of national-level/credible
players. While the marginal increase in cement prices might be passed to
end-users, RE players will also benefit from the ITC on raw materials used for
construction. Overall, GST will reduce compliance costs and improve the ease of
doing business in India.
The
other big reform – RERA, came into force on 1 May, 2017. RERA was passed to
ensure accountability, infuse transparency and bring uniformity in real estate
practices. RERA has been implemented in 18 states and all union territories; 10
states have yet to notify RERA rules. Among the states that have implemented
RERA, only 11 have an active online portal.
They
include Maharashtra, Karnataka, Tamil Nadu, Uttar Pradesh, Gujarat and Kerala;
amongst others. The act is expected to boost transparency in the sector,
address consumer grievances and help in rejuvenating residential demand.
Real Estate in 2020: Trends that will define realty by 2020
Office
With
innovative technologies such as artificial intelligence, big data, data
science, etc. being adopted by corporates, mundane/back-end and regular
business processes are becoming increasingly automated. Additionally, data
analytics is now emerging as a key factor in determining how technology can be
leveraged to improve business operations. However, employee movement caused in
the short-term due to the usage of these technologies is expected to be covered
up by the creation of new jobs, which will arise as a result of these evolving
technologies.
Another trend that is likely to become more dominant
is the usage of innovative workplace strategies, as there is an inclination of
occupiers to shift from exclusively focusing on cost management and space
efficiency to also looking at talent retention. This would result in wider
adaptation of workplace strategies that align company goals with real estate
needs by choosing workplace location and design to attract and retain talent.
It is expected that occupiers will be more “agile” and would focus on
‘future proofing their portfolios’ – taking real estate decisions while
balancing both short and long term corporate needs. Improved transparency in
operations is likely to be a by-product of the various legislations (RERA, GST,
REIT regulations, eased FDI in construction) that have come into force
recently, with the complete impact of these legislations on business operations
likely to unfold in the coming years.
Housing
2016 and 2017 have been high not only on legislative
measures, but have also brought into limelight an important, yet neglected
segment - “Affordable Housing”. Numerous measures to promote private sector
participation have been taken in the past year -- such as awarding
infrastructure status to affordable housing, 100 percent deduction on profits
for affordable housing projects, increasing the livable area of the units and
relaxed completion timelines, amongst others.
However, despite these measures, the segment needs a
stronger thrust, in order to be completely viable for private participation.
Availability of land, relaxation in development norms, faster approvals for
affordable housing projects, better alignment between central and state
policies are some of the factors that need to be addressed to allow the segment
to achieve its full potential.
As these gaps are plugged in, trends such as use of
technology to rationalise construction costs, access to formal sources of
capital, wider funding avenues, entry of credible developers are some key
trends that will define the segment by 2020.
Retail
While the traditional gateway cities of Delhi NCR
and Mumbai have been at the core of retail activity, lately cities such as
Bangalore, Hyderabad, Chennai and Pune have also seen robust retailer interest.
The southern cities, especially Bangalore and Chennai are likely to witness
strong supply and both the cities together, are expected to have a share of 30
percent in the overall retail stock by 2020, compared to around 23 percent
currently.
Irrespective of any key market trend seen in the
near future, quality will continue to remain the overriding theme. Precedence
of this can already be seen in developed retail markets such as the US, which
are beginning to witness an impact by the growing popularity of online retail.
However, quality malls even in these markets are
likely to survive, and outperform. Place-making will be at the core of these
well-performing malls, as a mall is no longer seen as just a shopping
destination, it involves eating out, entertainment, fitness centres – all
businesses that face less risk from e-commerce than traditional tenants. With
online retail becoming a larger reality, occupiers are devising strategies to
weave in this medium of shopping into their existing business models.
Retailers are adopting the omni–channel strategy
with services such as buy online and collect in store, customer returns and
refunds for products bought online, and providing store kiosks for browsing and
making payments. As convenience becomes an overriding theme, retailers are
reversing the shopping trend. Instead of shoppers visiting stores for
purchases, stores are being set up where consumers spend a lot of time. As a
result, transit oriented developments, mixed use formats, larger retail
components in office buildings are few formats that will witness more
prominence by 2020.
Warehousing
With the entry of global players across segments and
increasing awareness of domestic players, there is a need for better quality of
warehousing spaces which align with global benchmarks. The government’s
initiatives to streamline the logistics ecosystem has resulted in India being
ranked 35, out of 160 countries on the 2016 World Bank’s Logistics Performance
Index (up from 54 in 2014).
The implementation of GST will be the overarching
theme for warehousing and logistics activity in the coming years, as the tax is
likely to result in the emergence of a more consolidated market, where
warehousing architecture would be dictated by efficiency.
With the government keen on giving manufacturing the
long deserved thrust, it is likely that demand from the segment will pick up
pace. Warehousing footprint will not only be dictated by domestic demand, but
will also be governed by regional opportunities. As India gets ready to play a
larger role in the global economy, these opportunities are expected to gather
momentum, due to an increasing trade with Asian and global economies.
The sector is likely to witness the inflow of more
institutional funding and formal sources of capital, along with the entry of
national level/credible players. As national players with larger warehouses
emerge, deployment of capital in these fewer, better quality assets is likely
to become easier.
In 2018, policy reforms will usher in a new
operational environment. Policy reforms have been at the core of the government’s
agenda, as is evident from the numerous breakthrough reforms that have been
approved and implemented in the past two years.
Two reforms that will specifically have a bearing on
the real estate sector and its ancillary industries are the GST and RERA. It is
anticipated that with the implementation of RERA and future REIT listings,
there would be a paradigm shift in the mindset of the global investor.
The risk associated with Indian real estate is
likely to reduce given that only leading, trustworthy developers with proven
track records would be operating in the coming years. Over the coming years,
Indian real estate is expected to become significantly more organised, which in
turn would result in wider funding avenues.
Source - First Post - Mr. Anshuman - chairman India and South East Asia, CBRE)
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