In tandem with the global realty, real estate in India is also showing signs of positivity with markets bottoming out in major cities. Although there is a prevalent tendency among buyers to wait so that prices can further slump, selected markets across every city are showing impressive growth—both in terms of surge transaction as well as capital value.

The common underlying factors that are driving growth in most residential markets include large employment base in vicinity, economical pricing and upcoming infrastructure. The demand is more concentrated in the budget segment ranging between 25 lakh to 70 lakh categories, according to research conducted by Square Yards Global Intelligence Cell. Nine cities were analysed over the last six months.

It was found that nearly 27% of the total demand falls within the 40-70 lakh range, followed by 19% in the 25-40 lakh range. Thus, the 25-70 lakh sub-category constitutes nearly 50% of the total demand. Nearly 18% of the demand falls in the 70 lakh-1 crore segment and 13% of the total demand comes under the 1-1.5 crore category.

City outlook

In terms of individual cities, doldrums continue to linger in the National Capital Region (NCR), which is suffering from one of the largest inventory of unsold stocks. In Mumbai Metropolitan Region (MMR), positivity seems to be coming back, although it is more focused on the peripheral areas such as Thane and selective locations in Navi Mumbai. In Mumbai, other areas that are demonstrating impressive growth are Kandivali, Goregaon and Dombivali.

Cities such as Bengaluru and Pune, which are information technology-centric, have been doing better, although the former suffers from a large inventory overhang, especially in the high budget segment. In the budget and mid-segment, inventory turnaround is swift.

Smaller units popular

The last 6 months have seen a considerable rise in sales of smaller units such as 1-bedroom-hall-kitchen (BHK) and studio apartments in India. Earlier, this phenomenon was restricted to Mumbai. However, now it has been observed that across India, there has been a surge towards buying smaller units with large transactions seen in cities such as Bengaluru, Delhi-NCR and Pune. Square Yards itself has sold over 1,500 units over the last 6 months in Delhi-NCR and Bengaluru.

There are multiple factors that could be attributed to the rise in popularity of 1BHK and studio units in the recent times.

Earlier, home purchase was mainly done towards retirement. However, with rise in income and increase in general awareness about real estate as an investment class, increasingly younger people are buying houses. Young buyers, especially the ones who have travelled abroad and are accustomed to a modern lifestyle, are more interested in smaller units such as studios and 1-BHK units.

Smaller units are generally easier to manage and maintain. It fits well with the requirements of the young populace, and that of young working couples.

Smaller units such as 1 BHK and studios are also becoming popular among the investor fraternity. There is an inherent investor friendliness with such units. Not only do they come at smaller ticket sizes, but also new interesting investment plans.

Developers are structuring new plans with attractive schemes such as assured rentals, subvention and assured returns to woo investors.

Retail participation

Through Real Estate Investment Trusts (REITs), small investors can invest into income generating commercial real estate units. REITs are expected to provide a safe and diversified investment option for Indian investors. Likewise, it will open an alternate capital raising channel for Indian commercial real estate segment.

The government has been taking policy initiatives to expedite the process of implementation of REITs in the Indian market. In the latest budget, REITs have been insulated from dividend distribution tax, thereby clearing a significant tax hurdle.

Apart from this, with an objective of bringing in more transparency into the overall Indian real estate industry, the government has proposed a string of regulations in the form of real estate regulation Act. The Act makes it mandatory for the developer to share all the relevant information regarding projects. It also stipulates that developers should park 70% of their cash inflow in a separate bank account to ensure better linkage between cash inflows and project construction. The Act will also make developers liable for any delay in construction.

The Bill has been passed in the Rajya Sabha. In the subsequent stage, the state governments need to draft their own versions based on the Centre’s guidelines. The Act will result in a major paradigm shift with a strong emphasis on safeguarding buyer’s interest. It should also ideally boost buyer’s confidence.

Edited excerpts from Half-yearly report 2016 by Square Yards.

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