Realty looks grim in 2019, You should know where to look to make a deal

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Real estate is a key sector for our economy, The sector contribute more than 6% to Indian GDP.  In addition, the sector employs a 52 million workforce and is expected to generate over 15 million jobs over the next five years.

As per Economic times, instead of acknowledging the importance of the sector by state and central government, inventory overhang is expected to continue in 2019. As a result developers has to come up with value propositions for the end-users’ benefit, when the market is going to be consolidated. Funding will remain the lynchpin for the sector. Economics times expect moderation in prices, if current liquidity trends continue in 2019. While this disruption will lead to uncertainty in the short term, improving affordability and higher transparency will result in better economics over the medium term.

SWOT Analysis

Strength, Weaknesses, Opportunity and Threat

Strength

The sector is expected to witness significant transformation with the implementation of RERA, GST and IBC, leading to higher transparency and accountability, going forward.

Result:13-15% decline in inventory, Instead of stagnated valuation of last 5 years affordability has improved. Rentals of commercial space have gone up 5-10 per cent annually across regions over the last five years, driven by high demand for Grade A office space.

Weaknesses

The residential sector awaits recovery as buyers remain cautious. The under performance of the asset class has been a key reason for deferral of purchase decisions. In addition, the cap on property loss provisions has further impacted investor demand.

Cost of funding remains high as land financing is available only from NBFC. The increasing funding cost of the developer leading to low returns. Especially in a weak price environment.

Opportunity

Affordable housing will remain key driver for residential segment in 2019 as 90 per cent of housing shortfall is in the economically weak and low-income segments.

The stringent regulatory requirement and rising funding cost going to consolidate the sector, as a result organised developer with new strategies will improve their market share. As per ET in mumbai top 10 developers will increase their market share by 40 percent.

Key Threats

Funding Risk : NBFC funding to developers posted a 35 per cent CAGR over FY16-18 as companies faced operating cash deficits. With an increase in funding costs and fewer refinancing lines, developers would need to increase collections to meet the shortfall. As a result, we expect prices to rationalise in the near term. However, a delayed demand recovery despite price rationalization could lead to defaults in the interim period.

RERA Implementation: RERA norms implementation has been lagging in most states causing further delay in project execution with no improvement in customer sentiments.