In this connected world, what happens in the east affects the west and vice versa. When trade wars and vested interests take precedence, the overall trade scenario is bound to get impacted. The global economy is staring straight into a recession mainly on account of commercial conflicts and a protectionist approach that leading economists tend to follow to safeguard their interests. Consequently, political and economic climates of numerous countries including India are impacted.
Considering India’s growth forecast was 7-7.5 percent for this fiscal year, it has already been downgraded to 6 percent. However, the growth fundamentals of the economy are still intact. Therefore, it wouldn’t be wrong to say that what we are witnessing is a slowdown, not a recession.
The government’s recognition for and focus on reforming the business environment, across governance structures - through regulation, policy, and other initiatives (e.g. RERA and GST) combined with a wider government agenda, that includes Housing for All and smart cities, make it a conducive environment for buying real estate.
Now is a good time to contemplate investing in real estate, as prices are falling in key established markets. Bank interest rates are at a record low. Those buyers who were reluctant to buy property due to project delays now have a large ready-to-move-in stock (currently 16,500 flats are ready in NCR) to choose from, in line with their budget.
This is the most opportune time to buy property at one of the most reasonable price brackets in the last decade. However, it is important to take such decisions, keeping the following in mind.
Developer credibility: The intrinsic financial and professional strength of a developer should be a primary factor in decision-making. Before investing in real estate, a thorough assessment of a developer’s market credentials, financial strength, past delivery track record, capacity to manage multiple projects, unsold inventories and pending cases -- is vital. The market is rife with operators, who are ready to take buyers for a ride; given their financially distressed situation. Project features and attributes: It is important to check key attributes of a real estate project before investing. One should keep in mind the location of the project, supporting urban infrastructure, including connectivity, future potential of habitation, education and health, and entertainment facilities in the vicinity. These concerns require to be appraised properly, considering RERA, as of now is still to ‘develop teeth’ in terms of registering, monitoring and controlling projects. Financing plan for the project: The potential investor should not hesitate in asking for a detailed and transparent financing plan for the project. They should be alert in identifying any alarming gaps in the developer’s cash, inflow and outflow. Project fundamentals: The objective of RERA is to protect buyer interest. It is imperative that the project chosen for investing, should be registered under RERA. This helps demonstrate that the developer has the professional ability to manage the delivery of project covering amenities, site plan, master plan, floor plan, unit plan, utility spaces and project sustainability to its committed time, costs and quality targets as per their RERA registration. It is quite possible that there are a lot of discrepancies between the project amenities and specifications as promised and the actual plan. An added factor to ensure is that there should be no pending cases of the developer in RERA or otherwise. Role and credibility of real estate transaction agents: It is an unfortunate fact, but real estate is rampant with players who do not practise ethics and exercise a lack of transparency. To avoid being duped, one needs to make sure that he/she only deal with transaction specialists who are trained and suitably accredited. These agents are instrumental in building client and market trust, aiding confidence and assurance and working to the highest standards and an ethical code of conduct through their reasoned and transparent advice. Developers association with banks, NBFCs and HFCs: While a buyer may not know what to ask for or be able to verify documents, those buying a property through a home loan are on safer ground. Prior to dispensing a home loan, any bank or financial institution will take the necessary steps to ensure that all documentation is in place. This supports that all aspects of a project have been evaluated and it is a sound investment.
India has already seen its share of challenges in the real estate market, on account of policy reforms, regulations and the NBFC crisis. There were increased instances of uncertainty among end users, evident from a huge inventory pile-up in many cities. Despite these issues, the commercial, retail and warehousing sectors seem to be on the uptake in the last year and this swing is likely to continue for next 4-5 years. Given the fact that ‘Housing for all’ requires 25 million houses to be constructed by 2022 and India seems to be on track, we do believe that the real estate and construction market will continue to prosper and shall become the instrument of choice for future investments.
Nimish Gupta is Managing Director at RICS South Asia.