Real estate is one of India’s most powerful economic foundations. Rapid urbanization, changing consumer behavior, regulatory reforms and the influence of COVID-19 are currently fueling the evolution of this pillar. After being hammered by the pandemic, the real estate sector has started to recover.
The year 2021 has marked a turning point in the residential property sector in India. Strong domestic market momentum is expected to continue in 2022, with sales likely reaching pre-COVID levels.
Even as the global economy slumped, the outbreak caused odd behavior in housing markets, with prices soaring and few mortgage defaults. We may see the buying frenzy lessen now that the markets have reached all-time highs. Home sales have increased due to COVID. This year, trends are expected to return to pre-2020 levels. COVID has forced consumers to stay home, often with time off, and sparked a DIY home renovation craze. Nevertheless, it is believed that the future of home improvement will be dominated by professional services. The increase in property values and the equity in homes available to finance projects is one explanation for this change. Another factor driving this upward trend is that sales of existing homes will outpace sales of new homes, which normally require no work.
The market is propelled by the implementation of initiatives that generate demand and encourage the purchase of real estate. The greatest demand among buyers in the residential category is for ready-to-move-in apartments. At times like these, however, better customer education and managing expectations are essential.
The trends observed are revolutionary. The real estate sector in India is undergoing a technological transformation. Several cutting-edge strategies and solutions are being implemented across the industry. As a result of these new developments, the growth trajectory of the market has accelerated. One of the most well-known developments in home automation features a fantastic mix of technology and real estate. These types of places have huge potential to attract a wide range of investment opportunities as well as forward-looking buyers, especially millennials.
Additionally, trends that emerged during the difficult COVID-19 era will continue into 2022. Many new residential housing trends have emerged as a result of this transition. The housing sector represents a large part of the real estate sector (around 80%), and it has recovered quickly from the Covid-19 crisis. It has already started to return to pre-COVID levels.
Today, no developer wants to take out a loan to buy land. As a result, developers are opting for lightweight asset models such as JDAs. DM was once popular, but developers quickly realized its flaws, and JDA now serves as a suitable model to follow. People also prefer revenue sharing over area sharing due to GST restrictions.
Maximizing FSI was the game in the past when it came to underwriting ambitious endorsements. Today’s developers have realized that finishing projects on time or ahead of schedule is more vital than maximizing FSI. Developers can easily grasp the concept of net present value (NPV).
Large-scale technology integration
RERA prohibits the sale of paper projects, so approvals are given on day one. Before any project begins, important approvals must be obtained. Before banks can finance the project, more equity from the developer is needed. As a result, only reputable developers with large funds are allowed to participate in real estate development.
Customers really are kings now that RERA is in place. To protect the interests of customers, strict restrictions are in place. Standard agreements, cancellation and delay handling procedures, among others, are in place. Unilateral contracts with customers are no longer possible. Every developer now understands that sales are the real salvation. Prices are no longer disproportionate to interest rates, so it’s better to sell now than later.
Instead of focusing on financial engineering, real engineering takes priority. Developers today understand that genuine engineering is more important than financial engineering when it comes to bringing projects to fruition. Previously, when money was plentiful, developers opted for the latter over the former, leaving a large backlog of unfinished projects.
Developers have realized that their margins depend on capturing a land acquisition at the correct price and receiving clearances on time, so they have outsourced crore activities. As a result, developers outsource their projects and day-to-day operations, including cash flow management, while developers focus on business development and approvals. They can run their business more efficiently by recruiting talent at a reasonable cost.
Ready-to-live-in property is gaining popularity
Properties under construction are gradually losing their appeal due to long wait times and increasing project failures. Therefore, ready-to-move-in homes are becoming increasingly popular. Many builders have adopted the business strategy of build first and sell later in order to fit in with this view. This popular home concept in Europe and America is entering the Indian real estate market.
Attractive investment choices
With the requirement for real estate investment trusts (REITs) to have 80% of their underlying assets operational and income-generating, these properties have become a more solid investment alternative than traditional possibilities. It is a low-risk technique to diversify your investment portfolio. Despite the fact that the pandemic has put a strain on rental cash flow, a strong and rising long-term picture is expected.
Changing real estate market dynamics have resulted in a gradual growth in non-resident Indian investment over the past few years (NRI). Moreover, since the establishment of the FDI (foreign direct investment) route, India is the preferred site for NRIs to pool their funds. The sector will undergo a paradigm shift in the coming years as the influence of non-resident Indians grows.
The growing adaptation of technology and the Proptech revolution
Despite the fact that many Indian businesses are reluctant to embrace technology, real estate has always been at the forefront when it comes to utilizing its power. Additionally, millennial homebuyers have been influenced by their continued exposure to new technologies. As a result, homes with a high level of automation and Internet of Things (IoT) technology are becoming increasingly popular.
The rapid acceptance of Proptech solutions across all real estate sectors – from construction and sales to client engagement and asset management – was one of the most notable elements of 2021, and this trend is expected to continue in the future. Before the viral outbreak rocked the global business ecosystem, the proptech market had progressed beyond finding properties online to providing consumers with end-to-end solutions.
Ownership of estates and large residences is becoming increasingly popular
The property has become increasingly popular. While this helped build good consumer sentiment towards residential real estate, it was government and banking sector support that got things going. Measurements of demand and supply have improved through the convergence of these two elements.
Many homeowners have realized the practicality of large homes after spending a lot of time working indoors. As a result, the demand for slightly larger homes with multifunctional spaces such as workstations and activity spaces, as well as additional breathing room, has skyrocketed.
Distance is no longer a problem
Most companies will maintain their remote work culture while experimenting with some form of remote work culture for their employees. This eliminates the need to buy a home near your office, giving potential buyers more options as they can now make judgments based on factors other than ‘distance from work’. People will migrate to sites in low-cost localities if the culture of working on foot loses its appeal.
It is undeniable that the real estate sector is changing, with so many positive developments.
(By Srinivasan Gopalan, Chairman, Unitern Advisors Pvt Ltd)