After a brief period of lull post the COVID-19 outbreak, the Indian real estate sector is gaining momentum with recent trends of lower interest rates on home loans, discounts on stamp duty rates, greater availability of ready-to-move inventory and a long-term shift towards remote working.
In the latter half of 2021, India's real estate sector is emerging from the after-effects of the pandemic with its growth story intact. Despite the past year's challenges, the sector is on a new growth trajectory with many opportunities arising from segments, including warehousing, data centres, and logistics. In addition to being the second-largest employer in the country, the real estate sector also plays a massive role in India's economy, creating demand for over 270 other industries, including cement and steel.
The residential real estate market has seen a 44 percent increase in both sales and launches in the first quarter of 2021 compared to the same quarter last year. The recent trends like lower home loan interest rates, discounts on stamp duty charges, greater availability of ready-to-move inventory, and long-term shift towards remote working are the major factors that have been shaping the real estate sector in 2021.
Lower home loan interest rates
Over the past year, the Reserve Bank of India (RBI) has cut the home loan interest rates to historic lows. This has subsequently lowered the interest rates to six percent in some banks, which has encouraged homebuyers who were earlier hesitant because of the market sentiment.
Stamp duty discounts
Stamp duty discounts announced by some State governments have provided the real estate sector with a much-needed boost. In Maharashtra and Karnataka, the reduction in stamp duty has increased the consumer demand and the revenue collection for the governments. Reducing stamp duty provides stimulus to the market and incentivises potential homebuyers.
Greater availability of ready inventory
Since the construction sector was allowed to continue operations during the lockdown, there are more option available with respect to ready-to-move-in properties. This significantly reduces consumer hesitation and market risk, thus bolstering demand.
Model Tenancy Act
It is estimated that the population of urban areas in India will double in the next 30 years, thereby creating a huge demand for both buying and renting residential properties. The recently introduced Model Tenancy Act 2021 would make rent laws more transparent and equitable. This will help remove restrictions on a large number of housing units that could be leased out. Once States implement this Act, the considerable vacant housing stock can be included under the banner of formal rental housing.
The Act aims to implement an effective regulatory system in India governing landlord-tenant relationships, similar to the Real Estate (Regulation and Development) Act, 2016 (RERA) that regulates the sale of properties. It will also include a dispute resolution mechanism and provide a framework to delineate the rights and obligations of both the landlord and the tenant.
More financing options
The high-risk weightage given to the real estate sector by the RBI continues to be a deterrent in low-cost financing. The relaxation on restrictions will help in procuring Real Estate Investment Trust (REITs) funds, land financing, and foreign investments. Since 80 percent of REIT assets are required to be operational and income-generating, these have emerged as one of the most viable investment options, with their popularity continuing to grow.
Long-term remote working trend
Remote working must now be looked at as a long-term trend. Since people will continue to acquire spacious residential properties to accommodate home offices, the real estate market in Tier 2 and Tier 3 cities is expected to flourish. Work-from-home trend will encourage consumers to buy properties in low-density areas with well-managed infrastructure.