The uncertainty over the manner and form in which the Real Estate (Regulation and Development) Act, 2016 (RERA) rules will be implemented across states and the implementation of the Goods and Services Tax (GST) from July 1, 2017 has created confusion among stakeholders, especially with respect to on-going projects, says FICCI-NAREDCO Real Estate Sentiment Index for the second quarter 2017.
The “wait and watch mode” continues to rule current sentiments in the sector. Most industry stakeholders are awaiting more clarity on various policy measures over the next six months.
The industry though, does live on eternal hope! Future sentiments are positive if not bullish, all in the hope of several niggling RERA and GST issues getting settled soon.
The index reveals that there is a striking recovery in the sentiments of new residential launches in the second quarter of 2017. Nearly 68 percent of the respondents believe new launches will improve in the next six months. It is likely that these positive sentiments are triggered by the upcoming festival season and expected clarity on policy issues.
The sentiments on residential sales in the second quarter of 2017 is not bullish at all though. 68 percent of the respondents were of the opinion that it will take time for buyers to return to the market. The buyer confidence that was marred by project delays, non-deliveries, and litigations to name a few will depend on effectiveness of the policy reforms spearheaded by the government, it says.
In contrast to the lacklustre sentiments on residential sales, 59 per cent respondents were of the opinion that there will be an upward pressure on residential prices in the second half of 2017, due to an increase in compliance costs for RERA and GST.
“The current sentiments that had been positive, in the last quarter have moved in the negative zone for the first time since Q4 2015. The dip in sentiments is largely a result of ambiguity over policy issues, especially the implementation of the Real Estate Regulation and Development (RERA) Act, 2016 in some states and the Goods and Services Act (GST),” says Dr. Samantak Das – Chief Economist & National Director – Research, Knight Frank India.
“We, however, believe that the dip in sentiments is transient in nature. Going forward when clarity on policy issues come in, it’s positive impact should get reflected in the sentiments of the shareholders,” he adds.
Das further goes on to say that: “Increasing transparency levels and special status given to affordable housing, by the government will smoothen the flow of institutional funds into the sector, that too at competitive rates.”
“In the residential property market launches that hit new lows, in the recent past, should pick up in the next six months. This will largely be a result of clarity on policy issues. However, most stakeholders are of the view that, going forward it will take time for homebuyers to come back to the market. The buyer confidence that was marred by project delays, non-deliveries and litigations will only come back once they see the implementation of policy reforms spearheaded by the government,” he says.
Regarding the office market, new supply will be restricted in the next six months. Paucity of quality of office space has had its bearing on office leasing. Majority of the stakeholders opine that leasing activity will at best hold steady or will fall in the coming six months. This lack of supply will put an upward pressure on rentals in the coming six months.
New office supply has been eluding the market for the past two years and the sentiments in the second quarter of 2017 substantiate this fact.
64 percent of the stakeholders believe that new office supply will remain a challenge in the next six months due to factors such as project delays and lack of quality office space in key locations leading to a supply crunch in all the major cities of the country, it says.
Office leasing has been holding steady in the past few years but leasing volumes in the first and second quarter of 2017 have been low across cities. This is corroborated by the market sentiments as well, where more than half of the stakeholders opine that leasing volume will either hold steady or fall further in the coming six months.
Pressure on the IT/ITeS sector and the lack of quality supply in key locations has contributed towards the slowdown in leasing of office space, it says.
However, this lack of supply will lead to an upward pressure on rentals with nearly 86 per cent of the respondents believing that office rentals will either remain the same or move up in the coming six months, it says.