Recent Developments That Have Impacted Real Estate Pricing
Starting from November 2016, the Indian real estate market witnessed a lot of disruptions. Demonetisation was followed by the implementation of the real estate law and the Goods and Services Tax (GST) . These reforms brought some major changes in the way property prices moved. So, how have these developments impacted pricing?
At a recent conference, Shubranshu Pani, managing director, strategic consulting, Jones Lang LaSalle, said that the following factors impacted the way developers had to strategise pricing of their properties.
Real Estate (Regulatory & Development) Act, 2016
Several provisions of the law, including the clause on maintaining 70 per cent of funds by developers in a separate account, would increase the compliance cost for developers. Developers will pass on the increased burden to homebuyers, making property costlier for them.
Demonetisation
One of the major impacts that demonetisation has had is on the secondary sales due to the disruption of money circulation in the economy. A number of businesses also felt the impact which further affected the real estate sector.
Taxation
The implementation of the GST and with Budget 2017 restricting the set off of losses on the house property to a maximum of Rs 2 lakh, effective tax for investors has increased. However, this hasn't impacted pricing much, or rather moderately.
Credibility
Even before these factors impacted the market, developers' credibility mattered. Timely delivery, construction quality and brand management by the developer governed the way homebuyers spent their money. A quality construction by a reputed developer would encourage a homebuyer while even an affordable house by a defaulting developer will not work. In the past, the credibility factor has impacted prices negatively.
Industry experts believe that profitability is low because of uncertainty in the sector. Affordability could be another area that has impacted pricing. Developers have been under pressure to build what the mass wants. PK Aggarwal, chairman, Signature Global Group, says, “There should be a council to address the need of affordable housing in every state just like how we have for GST.”
Navin M Raheja, chairman and managing director, Raheja Developers Limited, says, “Stalled projects can only be resolved by giving them a hand-holding fund to complete projects. The government should intervene here. Also, instead of penalising developers, tax bonds, escrow accounts with homebuyer associations should be encouraged. Housing For All will also need a mindset change. We can no longer comply with an old set of policies.”