2016 seems to be more shiny in real estate

Whenever you see someone in the first week of January, you normally wish a happy new year in exchange of pleasantries. But what will happen to the real estate sector of India? Is it really happy for the realtors and the stake holder of the huge realty industry of India? Many says yes to it and others are a bit skeptical but they still are hopeful that 2016 will be much better than 2015. Does that mean that we are saying that 2015 was a bad year for the realty industry? The market trend watchers and the statics from the different global consultants like the Cushman and Wakefield, JLL and others say that it was mixed bag consisting of both positive and negative trends. Let us talk about the positive trends that were shown in the latter half of the year. The positive part was that the customers those were sitting on the fence waiting for green signals in the market finally got the impetus to buy and in the latter half of the year, the buyers were more. 

There were of course initiatives from the builders and the developers who were starving for liquidity to sell. In that spree the developers flaunted many offers and offered discounts and freebies that actually did not work so much. The trend watchers say that consecutive reduction of the bank repo rates and successive rate of reduction of the housing loans have been instrumental in increasing the demand of the buyers and the end users. On the investment front the entity level investment was much more and the total investment surpassed the level of 2014 by 74 percent. But the private equity investment was not so much as per the statistics. But from all these the trend watchers maintain the view that the investors have also increased and the latter half of 2015 also witnessed an increased investor confidence. The sales were more and this made the old piled up stock of the last three years being sold out. There are more than 7 lakh units still unsold in the nation in the major markets of India. This figure is likely to be much more if the count is taken in the whole of the nation.  One more observation that was of the market watchers were that the new launches came down drastically in the year 2015 and that is the reason that the stocks are coming down. 

The future - 2016

Coming to the year 2016 the realtors hope that with the relaxed norms of the foreign direct investment (FDI) there is a hope of renewed interest in the foreign investors and the institutional investors too. There is another hope of foreign players like the developers of China to come to India and invest with the local mega players.  This is a great hope for the sector as the realty industry is starving for liquidity and that is especially true for the affordable sector.  

The next reason for being more optimistic in the year 2016 is that the government schemes like the 100 smart cities, more infrastructures in the urban and rural areas, Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and few such measures will trigger the investment, employment and deployment of resources in the industry. 

Another good sign that was noted in the year 2015 was there was a much more demand of all time high in the five years of commercial real estate. The myth and the calculation goes in the industry that for each 100 sq. ft. of commercial space there is a requirement of 600 sq. ft. of residential space. In that context the realtors hope that although the picture of the housing sector in the year 2015 was bleak but due to the absorption of office and commercial spaces it can be predicted that the demand of residential units will pick up too in the next five years in the four metros and the major markets of India.  

So looking at all these and the government spearheading the realty missions the overall picture of the year 2016 seems to be brighter. 

Government postpones hike in Guidance value

The State Government took a decision that it won’t revise the guidance value of properties in Karnataka till the next budget session of the state assembly. Guidance value is the indicative value or the minimum value of the property below which the property cannot be registered. This decision of the state government comes in the wake of the stagnant market conditions. The unsold stock of apartments in Bangalore is more than one lakh units which is an alarming figure. The government exchequer receives more than three fourths of its land and property registration revenue from the urban districts of Bengaluru and the jurisdiction of Bruhat Bangalore Mahanagar Palike (BBMP). 

The registration and the stamp duty department opined that normally the government revises the guidance value each year in the month of November every year and before this period there is a rush of registration of properties to avoid the extra registration cost. But this year the government noted that the rush for registration was not so much compared to the preceding years which is not a good indicator.  

The state government led by the Chief Minister Siddaramaiah set a target for the stamp and registration department for the financial year 2015 - 2016 as Rs. 8, 200 crores but till the date of November 19th 2015 the department was only able to mobilize Rs. 4, 910 crore which is short of the set target by Rs. 30 crores. In the financial year 2014-2015 the department was able to collate a fund of Rs. 7, 070 crores in the way of stamp and registration fee but the set target was Rs. 7, 450 crore. The Inspector General of the registration and Commissioner of stamp Duty Mr. N V Prasad said that his department had earlier proposed a revised rate of guidance value but received a set of objections and comments from various stakeholders. He also reiterated that his department is currently investigating into the reasons of the objections and would take an appropriate action about these later. 

The government on September 14th had issued a notification relating to the proposed increase of guidance value in areas like Jayanagar, Gandhinagar, Rajajinagar, Basanvangudi, Shivajinagar and few other areas. It also included the areas under Bangalore rural districts and the Ramnagara districts along with few others. The revised incremental value ranged from 10 percent of the current guidance value to 200 percent in few of the areas. 

Many of the property consultants opine that the guidance value of the land and properties is not in tandem with the practical measures and values. This has resulted in inhibiting the real estate transactions in Bangalore according to the experts. They feel that higher range of stamp duty charges along with high guidance value of the properties in Bangalore has adversely affected the property market of the area under BBMP and the urban districts of Bengaluru too. This also affects the buying sentiments of the consumers which have been on the lower side during the last six months. This necessarily does not mean that the people are reluctant to buy but the market hasn’t witnessed growth in prices but the cost of raw materials has soared higher. In these circumstances the decision of the government to keep the increment of the guidance value in abeyance is a good decision opines many experts.