Real estate sentiments turn negative on RERA, GST implementation: FICCI-NAREDCO-Knight Frank India’s sentiment index

Sentiments in the real estate sector, which had been positive in the last quarter, have moved into the negative zone for the first time since Q4 2015, largely as a result of ambiguity over policy issues, such as the implementation of the Real Estate (Regulation and Development) Act (RERA) in some states and the Goods and Services Tax (GST), says a report by FICCI-NAREDCO-Knight Frank India, on the ‘Real Estate Sentiment Index for Q2 2017 (April–June 2017)’. However, this dip in sentiments is expected to be transient in nature, the report added. As clarity on policy issues emerges, its positive impact will be reflected in the sentiments of the shareholders. This positivity is apparent in the future sentiments of stakeholders, which is positive but not bullish, it said.

Commenting on the report, Samantak Das, chief economist and national director – research, Knight Frank India, said “Stakeholders are of the view that going forward, the economy will reflect better results and become more transparent. Increasing transparency levels and the special status given to affordable housing by the government, will smoothen the flow of institutional funds into the sector 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 it will take time, for home buyers 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. In a nutshell, while the current sentiments are down, the future is certainly bright in the residential property market. Success for this sector, lies in the proper implementation of government schemes by the respective states.”

Key findings of the real estate sentiment report

• The current sentiment score has gone into the negative zone and has reached Q4 2015 levels. Factors such as the uncertainty over the manner and form in which the RERA rules will be implemented across states and the implementation of the GST from July 1, 2017, created confusion among stakeholders, especially with respect to ongoing projects.

• The ‘wait and watch mode’ is still prevalent in the sector, in the expectation of clarity on various policy measures by the government in the next six months.
• The future sentiments, however, are positive but not bullish. This positivity stems from the fact that stakeholders expect clarity on policy issues, to come in the next six months.

See also: Demonetisation: Stakeholders’ sentiments fall to three-year low

Optimism reigns over funding scenario

• 62 per cent of the respondents opine that going forward, the economy will reflect better results, because most of the policy reforms concerning the real estate sector that were in the pipeline, have already seen the light of the day.
• Stakeholder sentiments remain steady, about the future flow of funds into the real estate sector. This will be a result of the transparency and processes brought about by policy reforms of the government, which will be instrumental in holding the positive sentiments of institutional funds, including banks.

Residential sector sentiment fighting hard to stay afloat

• There was a striking recovery in the sentiments of residential launches in Q2 2017, with nearly 68 per cent of the respondents opining that 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.

• On the other hand, there is a marked dip in the sentiments of residential sales in the second quarter of 2017 with 68 per cent of the respondents 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, is likely to return on implementation of the policy reforms spearheaded by the government.

• In contrast to the lacklustre sentiments on residential sales, 59 per cent of the respondents have opined that there will be an upward pressure on residential prices in the coming six months, due to factors such as an increase in compliance costs due to the implementation of new policies.

Office market plagued by pressure on demand and supply

• New office supply has been eluding the market for the past two years and the sentiments in Q2 2017 substantiate this fact. 64 per cent 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.
• 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, have contributed towards the slowdown in leasing of office space.
• 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.

Zonal sentiments: All zones warm up to policy reforms

All the zones look upbeat with the future sentiment score. The fact that many states have modified their RERA rules as per the local dynamics, has given a positive impetus to sentiments among stakeholders from the supply side of the real estate market.

[“Source-housing”]