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Economic Survey 2018: Home sales at 5-year low, FDI needed for revival

Sales during the first half declined by over 38 per cent when compared with the same period a year earlier, while unit launches fell by over 56 per cent during the same period

Karan Choudhury  |  New Delhi 

Realty firms struggle with record Rs 99,000-cr unsold inventory

India’s hit rock bottom, falling to a five-year low in 2017-18, and a change in market sentiment to attract more (FDI) would be required for a revival of the beleaguered sector, the Economic Survey 2017-18 notes.

While residential real estate market saw sales of only 58,000 units in the first half of 2017, new home sales fell to a five-year low of about 101,850 units during this period. Sales during the first half declined by over 38 per cent when compared with the same period a year earlier, while unit launches fell by over 56 per cent during the same period, the Survey said.

According to the Survey, the share of real estate sector, including ownership of dwellings, accounted for 7.7 per cent in India’s overall gross value added in 2015-16. “The growth of this sector decelerated in the last three years from 7.5 per cent in 2013-14 to 6.6 per cent in 2014-15 and further to 4.4 per cent in 2015-16. This was mainly due to the growth of ownership of dwelling segment, having a share of 6.8 per cent in overall GVA, decelerating from 7.1 per cent in 2013-14 to 3.2 per cent in 2015-16. The growth of the construction sector, which includes buildings, dams, roads, bridges, etc, has decelerated to 1.7 per cent in 2016-17 from 5.0 per cent in 2015-16,” the Survey added.

Residential launches across top 14 cities of India during the first half of 2017 fell to the lowest in the past five years.

Admitting that the enforcement of the Real Estate (Regulation and Development) Act (RERA), as well as the Goods and Service Tax (GST) – both of which were brought in last year – have had an effect on the residential market, the Survey said that it was just for a short period as these reforms helped in bringing down the unsold inventory levels from 888,373 units in April 2016 to about 807,903 units in October 2017.

Even as the Survey seems to be bullish on FDI in real estate, the year 2017 closed with a fall in on-boarding of foreign funds – from $5.9 billion in 2016 to $5 billion.

However, the Survey claimed that the strength of the Indian economy and favourable demographics, coupled with the introduction of several growth-oriented reforms were helping the attract higher investments.

“This positive sentiment was attributed to a host of factors, including regulatory environment, enhanced infrastructure, and amendments to Real Estate Investment Trusts (REITs). These policy initiatives are expected to lead to higher transparency and accountability and make the sector better organised and structured, thereby increasing the investments,” the Survey said.

Industry experts, meanwhile, said that rather than just relying on change in sentiment and FDI, the government would need to bring in reforms that have been demanded for long by the sector.

“We need single-window clearances. Today, a company has to take as many as 30 different approvals to get clearance for construction. This takes around three to four years at times. Change is needed on ground to change the situation in the market,” said Parveen Jain, vice-chairman, NAREDCO.

The Survey said that the share of private equity funds in real estate funding had gone up significantly – from 14 per cent in 2013 to over 82 per cent in 2016. On a cumulative basis for the 2013-16 period, PE funds had been the highest source of funding, accounting for 57 per cent share, followed by bank lending (34 per cent), while the remaining 9 per cent was funded through FDI inflows.

Reforms in PMAY

Some of the recent reforms and policies related to the include the (PMAY), where the government-sanctioned over 3.1 million houses for the affordable housing segment in urban regions until November 2017.

Of this, about 1.6 million houses have been grounded and are at various stages of construction, and about 0.4 million houses have been built under the mission.

A public-private partnership policy for affordable housing was also announced on September 21, 2017, for the affordable housing segment to provide further impetus to the ambitious ‘Housing for all by 2022’ mission. The Credit Linked Subsidy Scheme (CLSS) under PMAY was extended to the Middle Income Group (MIG) segment, which got included in the scheme from 1 January 2017.

With the enactment of RERA, 2016, it is anticipated that accountability would lead to higher growth across the real estate value chain, while compulsory disclosures and registrations would ensure transparency.

First Published: Mon, January 29 2018. 14:24 IST
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