The year 2014 did not see an exponential growth in the Indian Real Estate market. However, with the formation of the new and stable government at the center, the sentiments have revived. The new government has laid emphasis on key factors controlling this industry and announced numerous short and long term measures to boost revival in this sector. What the homebuyers and investors will experience in 2015 is affordable housing, increase in tax rebate on interest repayment of home loan, lenient FDI norms, an increased income tax exemption slab and development of 100 Smart Cities.
According to a survey conducted by the Industry Experts, the year 2015 will experience a sharp, positive growth trend from the previous years, which will stabilize the property market to a great extent. The survey reveals 39% homebuyers want to buy a property for self use as they are currently staying in rented accommodations. An additional 1/3rd portion of the homebuyers want to purchase property to meet the mounting family needs. Whereas, only 14% buyers want to purchase an asset for long-term investment, and 5% consider their asset as a short term investment tool, for a period of 2-3 years. These statistics indicate the positive and hopeful mood of the investors, which the new government is eager to build upon with its governance and strategies.
The Central Bank predicts a 6.5% GDP growth in the FY2015-16, which puts Corporate India in the fast lane. It has made apparent that a steep raise in jobs and incomes will be witnessed all round the year. And, this indicates that the Indian Realty sector will boom as the demand for both residential and commercial properties will skyrocket.
In 2015, Construction companies will be more transparent in their offerings on property sizes and the prices. This year, smaller, yet energy-efficient designed homes will rule the residential real estate market. A correction on over-priced cities will help in quickly clearing the stagnating inventory, paving way for new and better residential spaces. Townships will become widespread, and a moderate in increase in the construction of luxury homes will be seen, with emphasis on affordable housing for all.
The new government at the center is expected not resort to “mindless populism” in the FY2015-16 Union Budget. This implies that the new government will not burden the Indian population with high inflation and will take stringent measures to improve employments and incomes. The economic revival in 2015 will positively affect the Indian Realty sector- with affordable housing being the motto and buyers and investors having a greater purchasing power.
The new government has strongly indicated that good governance, better planning and implementation are yardsticks for evaluating performance, and affordable housing is an important benchmark. To capitalize on this vital fact, developers today are addressing the sharp demand for affordable housing in their cities, and have curbed the demand for high-end and luxury residential offerings.
Closing the affordable housing gap would take 20 years; nonetheless, both prominent and new Construction Companies are devising novel strategies to align their brand image with the affordable housing format, without impacting their status. The attractive festive schemes doled out by the developers in under-construction of 2014 are likely to continue in 2015.
With the current momentum gearing towards affordable housing for all segments, the developers may shift their focus from the luxury segment only to return later, when the GDP touches the 6.5% mark.
The FY2015-16 Union Budget proposes to raise the ceiling limit on home loan repayment. Deductions for principal repayment is currently capped at Rs.100,000 under the Section 80C of the Income Tax Act, 1961. The upcoming budget proposes that the principal paid should be further raised or the principal repayments should be considered as a separate tax exemption, and not clubbed under Section 80C.
Furthermore, the Finance Act (No 2), 2014 increased the deductions on interest repayment of the home loan to Rs. 200,000. But, the upcoming Union Budget wants more! It proposes to raise the ceiling limit to Rs. 300,000 keeping in mind the escalating property prices.
Real Estate Investment Trusts (REITs) is a recent development in the history of Indian Real Estate market. However, REITs may become highly inefficient if the earned dividends are taxable. To improve the Foreign Direct Investment (FDI) and safeguard the interests of the NRIs, it is recommended to make dividends completely tax-free.
What this means for the homebuyers and investors is that they have a greater purchasing power, which will improve the overall all sentiment in the market, leading to an exponential Realty growth, which would contribute to the 6.5% GDP mark.
Realty and Share Market
With the formation of the new government the stock market has been witnessing a bullish market with the Sensex touching 30,000 mark, and expected to cross even further. This has resulted in the Realty sector to celebrate at BSE and NSE stock exchanges. With many prominent builders bagging new residential and commercial projects, the demand and supply for real estate market will be adequately met.
With lower property costs and quick environmental clearance from the authorities, builders will continue to launch new projects and clear their pending inventories with aplomb. The realty market will be hot in 2015 which will propel the share market in a longer bullish (profitable) phase for the Realty share holders.
With a slow growth witnessed in Indian Realty sector in 2014, the promise of affordable housing, tax reforms and bullish share market will fuel the Realty Engine in 2015.
Subsequently, the activities to sell off the unsold residential inventories have gained momentum. Homebuyers intending to purchase ready-possession apartments will thus find less room for negotiations, as compared to buyers/investors who can wait for some time to get possession.
However, the buyers will gain in 2015 from lower borrowing rates, largely stable Realty prices, increased focus on affordable homes by the developers, and improved employment opportunities and income prospects.
It is thus safe to say, the Indian Realty sector will emerge victorious in the New Year with upcoming FY2015-16 Union Budget.