2018 May Not Bring the Big Residential Revival

The year 2017 will be remembered as the year of disruption and radical policy reforms in the history of Indian real estate. While RERA and GST might be considered as a disruption by the industry, the government’s sustained efforts towards promoting affordable housing provided some hope to the beleaguered residential sector.  However, the year 2017 was another watershed year for the residential sector wherein neither new launches nor sales could not ignite the hope of revival. As 2017 comes to end, developers are hoping that the year 2018 will bring in the much-anticipated revival of the residential sector. However, the year 2018 is expected to be no different than 2017 because of the following notable trends:

• Weak consumer sentiment will limit the revival -The weak job market, and slow GDP growth rate has negatively impacted consumer sentiment and they might continue with their stance of being extra cautious and conservative while making long-term financial commitments.
• Developers will be under stress -Developers will continue to be under tremendous pressure for completing the projects as the consumer activism will increase and cases delayed possession will be taken up seriously by RERA.
• A possibly lacklustre budget for real estatesector - Budget for 2018-19 is expected to framed keeping in 2019 elections in mind. It is expected that the budget will be largely populistic in nature focusing more on rural economy wherein farm loan waivers and increase in minimum support price for various agricultural produce will be announced. These measures will put pressure on the fiscal position of the government, and hence any rebate for the residential sector in the form of reduction of GST rates or increase in the tax exemption limit for home loans may not happen.
• Hardening of interest rates- Inflation rate has been gradually inching up and the resurgent crude oil prices might further keep it at an elevated level. Also, the 10 years bond yield has been gradually inching up. The fiscal deficit is also an area of concern for RBI. In this backdrop, we might start to see a hardening of interest rates from the second half of 2018.
• Restricted new launches - In 2017, developers restricted the new launches and focused on completing the projects. This trend will continue in 2018 as well, as the regulatory pressure will further increase. Also, the supply of ready-to-move-in properties might increase in 2018 because of developers’ sustained focus on completing their existing projects.