Residential property as an investment has always been the poor cousin of commercial real estate, and 2019 couldn’t have been a better testimony to this statement, as housing sales were plagued by demand slowdown amid surplus inventory and office space leasing hit a record high.
While sale of residential properties increased only marginally despite plethora of steps taken by the government through the year, office space leasing rose 40% to touch an all-time high of 46.5 million sq ft — a trend that drew investors to lap up India’s first Real Estate Investment Trust at an issue size of nearly ₹5,000 crore.
Real estate developers in the housing segment struggled to stay afloat due to poor sales and acute cash crunch, and homebuyers continued their battle to get their dream homes, dragging many builders to insolvency court.
“The year 2019 witnessed no significant momentum for the realty sector in India, economic slowdown to challenges such as liquidity crunch, delayed delivery of insolvent projects and un-regularised cases in National Company Law Tribunal (NCLT) deterred the growth of the sector,” CREDAI (National) President Satish Magar told PTI.
The apex realtor body’s Chairman Jaxay Shah listed liquidity as a major challenge currently faced by the sector. He, however, hopes for revival next year aided by steps taken by the government like tax sops, a sharp cut in GST rates on under-construction flats and a ₹25,000 crore fund to salvage stalled residential projects.
According to property brokerage firm Anarock, housing sales rose by a mere 5 per cent to 2,61,370 units in 2019 across seven major cities compared to 2,48,310 units in the previous year.
Usually, the July-December period sees a significant rise in sales driven by festive demand. However, 2019 saw a decline in sales during the second half of the year, compared to the first six months of the year.
“Unrelenting liquidity crisis, lower-than-expected buyer sentiments and faltering gross domestic product (GDP) growth eventually put brakes on the overall housing growth in the second half of 2019,” said Anuj Puri, Chairman, Anarock.
Anshuman Magazine, Chairman and CEO (India, South East Asia, Middle East and Africa) at CBRE, said the non-banking financial company (NBFC) crisis and the resulting economic slowdown have slowed the recovery of residential sector.
The only silver lining in an otherwise dull residential property market was a surge in demand for affordable homes priced up to ₹45 lakh, driven by incentives like lower goods and services tax (GST) of one per cent, additional deduction of ₹1.5 lakh for interest paid on home loan and interest subsidy under the Credit Linked Subsidy Scheme.
Completed units, which are exempted from GST and also risk-free, were in much demand.
Housing demand and supply consolidated towards realty firms that are either part of big corporate houses or have a decent track record in execution of projects. The number of developers operating in the property market fell drastically.
In contrast, the commercial property market was bullish.
According to property consultant JLL, the net leasing of office space touched a record 46.5 million sq ft this year driven by demand from IT/ITeS sector.Real estate sector attracted an investment worth over $6 billion this year, largely in rent-yielding commercial assets by foreign investors, according to Colliers.
Co-working and co-living concept gained momentum, led by millennials who believe in shared economy, with big developers entering these two segments dominated by startups.
At the start of the year 2019, property developers and consultant predicted significant revival in housing sales, albeit on the lower base, while the momentum in the commercial space would continue.
Even as office space absorption hit a record high, homebuyers kept postponing their decision to purchase — first waiting for lower GST rate (1% on affordable homes and 5% for other flats) made effective from April 1 and then uncertainty related to general elections.
Once bitten twice shy, buyers chose not to invest in properties of lesser-known builders.
A decision to ban subvention scheme, under which builders used to pay interest on home loans on behalf of home buyers, did not help the cause; rather deepened the liquidity crisis faced by the industry since the second half of 2018.
“To say it was a tough year for the housing sector is an understatement. Sales were anaemic,” said Dhruv Agarwala, CEO of PropTiger and Housing.com.
Through the year, the government announced several measures, including a new ₹25,000-crore fund for stressed residential projects, sharp cut in GST rates for under construction flats and tax incentives to revive the real estate industry and boost economic growth from over six-year-low of 4.5% in the second quarter of this fiscal.
The RBI, too, pitched in with sharp cut of 135 basis points in key benchmark lending rates that softened home loan interest to around 8%.
Although these steps were not enough for significant growth in sales, it reflected the importance the government gave to real estate sector.
Nevertheless, it seems housing demand can only increase from here, as sales and prices have bottomed out.
“We have a positive outlook for next year and are hopeful that the sector would revive in the coming year,” sair Magar of CREDAI.
Next year could also bring relief to lakhs of home buyers who invested in stalled housing projects.
Significant progress has been made this year in resolving the crisis in Jaypee Infratech and Amrapali, while efforts are on to provide relief to Unitech homebuyers.
State-run NBCC won the bid to acquire Jaypee Infratech in an insolvency proceeding. In the Amrapali case, the Supreme Court has directed NBCC to complete the pending projects.
Industry experts believe that swift disbursement of money from the ₹25,000-crore fund, which seeks to complete over 1,500 stalled housing projects comprising around 4.5 lakh units, would be key for revival in demand.