Re-instilling trust in the Indian real estate

The COVID-19 pandemic outbreak is reshaping the ‘new normal’. The pandemic’s short-term detrimental impact has eroded business values and growth prospects for most sectors and economies globally including a consequential effect on the real estate sector as well. Supporting the economic contribution through more than 250 industries, the real estate sector in India is expected to be temporarily and ominously handicapped by the ongoing pandemic.

However, in the post pandemic phase, with the urbanisation levels slated to cross 55 per cent from the present 34 per cent in the next decade, the Indian real estate industry is poised to grow to USD1 trillion by 2030 and contribute 13 per cent to the country’s GDP by 2025. The Indian real estate holds immense significance in the economy with the sector employing over 50 million people and being the third largest employer after agriculture and manufacturing in the country.

Despite the huge potential of the industry, here are some policy and business initiatives which could build trust in the Indian real estate sector and as a direct result, contribute towards revival of the sector.

Understanding buyer sentiments:

The year 2020 has already started to witness positive home buyer sentiments not only from an end-user perspective but investors/second time home buyers scouting for opportunities at rationalised price expectations. Projects that are constructed or where significant construction is underway are expected to witness consumer confidence as buyers are unwilling to take any risks.

Adapting new business models: sale of constructed units.

Given the present market scenario, wherein developers are facing financial crunch post the outbreak of COVID-19, has led to homebuyers being more averse to purchasing under-construction units. Sale of constructed apartments would not only help buyers navigate the risk of investing in under construction property but avoid GST as well.

The additional cost on increased working capital requirement would be marginal for developers and the same can be negated by the better per sq. ft. sale pricing post construction.

Developers would have to undertake their due diligence thoroughly before considering such a strategy to mitigate demand fluctuations post construction; procuring construction finance would be equally challenging considering the high marketing risks involved. Liquidity could be a challenge for marginal or unorganised developers; however, for developers with established sales records this trend could help in building trust and cater to the risk averse buyers in the current market.

Technology shall play a pivotal role in shaping the Indian real estate sector by introducing efficiencies and automation in every facet of the sector such as design, construction, project management phases along with an enriched customer experience during the marketing phase. Indian real estate sector is gradually adopting technologies that improve market access, efficiency, quality, assured delivery timelines and consumer experience.

To maximize convenience, environmental sustainability and cost efficiencies, the Indian real estate industry players are progressively exploring opportunities harnessing a range of new age technologies such as Internet of Things, Building Automation, Artificial Intelligence, Big Data, Blockchain, etc. Concurrently, the Government of India has also taken up various initiatives like ‘Smart Cities’, ‘Digital India’, ‘IndiaChain’, ‘Global Housing Technology Challenge’, etc. to actively promote digitisation and ICT embedded infrastructure solutions in the sector.

Adoption of technology shall not only help the developers to build cost efficiencies in construction but shall simplify the property buying process for consumers as well.

Avoid over-leveraging

Conservative developers averse to high debt levels have fared better than their optimistic counterparts with high leverage at multiple levels such as land through JDA/NBFC/PE financing, construction finance and marketing/ sales financing through subvention schemes. With such overleveraged projects, developers are bound to get affected by any short-term liquidity crunch in the financial market or even a sluggish sales activity. With land being sourced from internal accruals or equity, limited leverage at the construction finance level and avoidance of any sales scheme shall pave the way for a successful development.

Banks playing a key role in rekindling interest in real estate buyers

Unique home loan solutions such as financial institutions guaranteeing payback of the principal amount to the home buyers if the possession is not delivered in the stipulated timeframe shall further re-instill confidence in the residential real estate segment which is grappling through tough times for the past couple of years. Financial institutes may monitor the project and disburse funds accordingly to the developer. This would not only help build confidence in the respective developers in the market but help banks safeguard their portfolio through an in-depth due diligence on such projects.

Digitisation of land records, online property registrations and streamlining of land title insurance policy

Digitised land records, an attribute of a developed real estate market, should be one of the key priority areas for the sector as this would instill higher credibility with seamless investments both from national and international investors. Additionally, the issue of ownership/title is a large-scale problem in the real estate market. Title insurance is expected to shield the interest of owners, investors including lenders against any shortcomings in the title to a property.

Although RERA mandates the developers to get title insurance for their projects and transfer the insurance to the society at the time of exit, there is not much clarity towards this process. Guidelines for the transfer of such title insurance to societies shall further help the residential real estate segment in India. These measures are expected to further facilitate large-scale township/ satellite town developments, thereby creating direct and indirect employment.

The COVID-19 pandemic has been a great leveler. With each passing day it has taught us adaptability, resilience with each real estate segment undergoing its own reorganisation; enabled by implementation of new business models, innovative consumer engagement mechanisms, optimisation of real estate portfolios, re-calibration of financing and operational cost levers through technology adoption, design innovations, etc.; the medium and long term shall present ‘unique’ opportunities for stakeholders. However, till these transformations are adopted and implemented, consumers would have to