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Good Days Ahead For Real Estate

By Mr. Murali Malayapan – CMD, Shriram Properties Ltd.

The Indian real estate landscape is set to evolve considerably in the next six years and beyond. Real estate as a sector plays a key role in the growth phenomenon of any emerging market, and India is no exception. The year 2019 should be considered as a period of introspection for the Indian real estate industry. However, the outlook remains extremely positive.

The real estate industry will continue to witness its ups and downs. However, with various government initiatives like REIT funds, AIF etc., the sector is bound to receive a substantial share of the FDI inflow. Even as growth moderates in many emerging markets, the pace of construction activity remains rapid, considerably impacting investment opportunities. Yet, growth is only part of the story. While many of the trends to be witnessed are already evident, there’s a natural tendency to underestimate how much the real estate sector will have changed by 2020. With the right checks and balances induced in the system to moderate and de-risk investments, the future of real estate in a country like India, is even more promising.

Though the residential sector stagnated with issues related to surplus inventory, liquidity issues due to the NBFC crisis and general elections, there has been upside too; implementation of RERA has helped clean up the sector and RBI has cut the repo rate in 2019 to a nine-year low, as an impetus for growth in the future. New avenues of development in logistics & warehousing, new airports and infrastructure expenditure by the government have also had their positives on the industry. In other words, the year 2020 maybe foreseen as a very buoyant year for the Indian real estate sector, keeping in mind the slow but systematic revival of residential projects.

NBFCs have increased their rates, making it less attractive to the developers, which is affecting their operations. Not only the developers, but the crisis has also substantially reduced the borrowings of the prospective homebuyers, which has had an effect on the demand for residential properties. With the freeze on disbursements by NBFCs, the entire real estate sector was struggling to secure liquidity.

The changing real estate landscape will have substantial implications for the real estate investment community. The global investable real estate universe will expand substantially, leading to a huge expansion in opportunity, especially in emerging economies. By 2020, investable real estate, globally, will have grown by more than 55% compared to 2012, according to PwC forecasts, and is expected to expand by a similar proportion in the following decade. The greatest social migration of all time – primarily in emerging economies – will drive the biggest ever construction surge. Fast-growing cities and micro markets will present a wider range of risk and return on opportunities. The concept of sustainability has also broadened to mean creating ‘places’ where people enjoy living and working. So, new developments are being designed with green spaces, good air quality, spaces for social gathering and so on. It is suggested that the government regulations are pushing sustainability with the real estate agenda and tech is impacting property economics. The realty sector is also likely to play a greater role in the financial ecosystem of 2020.

For developers, technology advances will make eco-efficient building more practical. The technologies behind smart appliances, smart metres, smart building management systems, integrated distribution management systems and city-wide energy management systems are continually becoming more advanced and efficient. Considering, real estate is a business where small number of individuals manage large amounts of data; relating to tenants, buildings, etc., it is natural to expect a significant increase in the use of data analytics in the sector.

While many of the trends highlighted are already evident, there’s a natural tendency to underestimate how much the real estate world will have changed by 2020. The level of affordability will fall, leading to greater urban density of smaller and more proficient living spaces. Developers will become more innovative about how they design and build residential real estate, seeking to use space more efficiently. The changing real estate landscape will have substantial implications for the real estate investment community. The global investable real estate universe will expand substantially, leading to a huge expansion in opportunity, especially in cities and emerging micro-markets. In some emerging economies, the growing opportunity for real estate investment will carry a host of complex risks. Often, the shortage of assets will mean real estate managers have to partner with local developers, which carries numerous operating risks, such as delayed completion or even fraud. In order to prosper in real estate’s new world, leading industry players such as managers, developers and the investment community need to make sure they have the right capabilities and qualities. A global network with local knowledge, good government relations and specialist expertise and innovation.

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