Market to gain momentum in Tier-II cities

Sameer Jasuja

The election fever has gripped the country and the real estate sector, too, is gearing up for the impact of polls. Because of the lections the next few months of 2019 are going to be interesting for real estate and  those embracing the changing dynamics of the market are going to be successful during this time. Apart from elections, credit growth and developments in infrastructure is also likely to set the tone for economic growth in the future.

In 2018, Indian Real Estate was still coping with the reforms that were enacted recently, specifically RERA. The impact from these reforms is so large that they will overshadow the short-term pre and post-election effects that we have witnessed in the past election years. Additionally, institutional investors that lend liquidity to development projects might get a bit cautious during the run up to the election, which has been the case historically with most elections. This will lead to a slowdown on the supply side over the next few months.

One of the major government policies that made a remarkable impact on the real estate market was demonetisation in 2016. A major share of market under mid and lower segment of developers in tier II cities was dominated by cash transactions. Demonetisation combined with RERA was expected to bring transparency as well as eradicate black money from the market. Although the move had a negative short-term impact which resulted in a decrease in real estate transactions during the period, the policy is likely to benefit the consumers in a longer run.   

Traditionally, real estate prices remain soft ahead of the elections, but gain momentum afterwards. 

While the polls might not significantly impact property prices, they could delay policy clearances and infrastructure projects critical to real estate. A firm government at the Centre in 2019 will further boost the growth in the sector. Seeing the current boost in the sector, especially in the affordable housing under the PMAY schemes, sale is likely to increase further. Smaller cities with high mid-income population base are the epicenter of unexploited demand for residential segment. Ticket sizes for residential properties in Tier II and III cities are considerably lower, thus more affordable, simultaneously post the interim budget 2019-20 the GST rates for affordable housing have been further slashed to 1 per cent with effect from April 1, 2019 to make it more affordable to the buyer. Smaller cities are currently under-served markets for quality retail and entertainment experiences, while the population has a high propensity to spend. Therefore, many realtors are actively looking beyond the metros to explore opportunities offered by a large consumer base, which is hungry for experiential retail.

The demand for asset classes such as Commercial and Industrial Real Estate should stay on course with growth in the Warehousing or Industrial space. The demand for these asset classes are largely driven by macro India growth story, which is not expected to change before or shortly after the election.

With affordable being the major focus for the buyer as well as seller, the Tier 2 market is expected to regain momentum in the next few quarters,