No real estate blues despite demonetisation, GST

engaluru: Demonetisation and the goods and services tax (GST) may have brought the country’s real estate sector to its knees, but the near 12-month-high stock prices of some of Bengaluru’s realty developers offer a sense of optimism.

The government’s crackdown on unaccounted money through demonetisation in November 2016 sucked out most of the cash in circulation, dealing the first blow for the sector that’s heavily dependent on cash transactions. That, along with the rollout of G ST a few months later in July, forced potential buyers to hold their decisions on investing in a home.

In Bengaluru, though, while the share of unsold inventories stood at 25% as at March 2017, the situation improved in later months. Between July and September, the share of unsold inventories in the city dropped by 16% from a year earlier, according to Anarock Property Consultants’ data.

The Real Estate Regulatory Authority (RERA) Act, 2016 gave homebuyers the right to ask builders for plan sanctions, layouts plans, approvals from authorities, and documents, giving them more confidence about investing in real estate.

Also, while developers in other large Indian cities shrunk home sizes due to skyrocketing prices, in Bengaluru, home sizes remained mostly unaffected. While average home sizes in most large cities decreased by 12-21% last year, in Bengaluru, the  reduction was a mere 2%.

This, according to a prominent developer in the city, reflected the minimum impact of GST and RERA on homebuyers in the country’s technology and startup capital. “Most of the homebuyers in this city are IT folks. These buyers buy houses on loans. Hence, both the policies have not strongly impacted the real estate sector in Bengaluru,” he said Welcoming RERA and GST, the developer said the policies would benefit builders in the organised sector in the long run. “Buyers have been skeptical about purchasing houses… But I believe the industry will stabilise within a year,” he said.

Property consultancy Jones Lang LaSalle’s (JLL) report titled “Bengaluru – Opportunities in Challenges,” released in November, anticipates growth in the real estate sector despite the uncertainty. “Developers are working hard to comply with these policy changes while prospective buyers are adopting a wait-andwatch mode. Therefore, both demand and supply are becoming affected in Bengaluru,” JLL said in the report.

The situation has led to private developers exploring opportunities in the affordable housing segment. “Every new challenge is an opportunity for innovating new solutions in Bengaluru. Therefore, as the city’s population is estimated to be more than 14 million by 2021 and office stock is likely to be more than 135 million sq ft, Bengaluru is likely to see many more innovations in urban development and real estate,” JLL said.

The Confederation of Real Estate Developers Association of India (CREDAI), Bengaluru chapter, calls this period as the “stabilisation period.” CREDAI secretary S Suresh Hari said buyers have not exited the market but are taking time to make final transactions. “GST and RERA put a financial crunch on builders not in terms of sales but in terms of collection,” said Hari. “Demonetisation created delays in payment cycles. Customers froze closing their deals. Not that they cancelled the transactions but were not ready to process payments because of apprehension.”

CREDAI is pinning its hope on the Union Budget for 2018-19, expecting incentives for the real estate sector including rationalisation of GST and labour law reforms. “We expect a better market situation and acceptability in the next two quarters,” Hari said.

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