NEW DELHI (INDIA): Is housing an investible asset at all? To find an answer to this question, India’s No.1 property site, Magicbricks, in association with KPMG in India, today launched a report titled – “Residential Real Estate: An Investible Asset.” The report aims to decode the asset class that spells hope, social status and a definite return on investment.
The one-of-its kind report captures and analyses the Indian Housing Market and enlightens home buyers on major factors such as demand-supply dynamics, regulatory and economic environment, physical and social infrastructure, which can impact their residential property buying decisions, and also covers key underlying themes.
“Residential Real Estate: An Investible Asset” reveals that India was ranked among the best performing markets globally thanks to the fact that real estate property prices have more than doubled over the last decade. Interesting to note is the affordability rate to own properties has come down by 50 per cent, as income growth has lagged property price growth. That being said, India’s property market is relatively affordable as compared to its global counterparts.
The report states that though the residential real estate market remained subdued towards the end of 2016 due to demonetisation, it may take time to pick up as RERA and GST are likely to disrupt the real estate market in the short term. However, the market is expected to pick up in the next couple of quarters.
The real estate market has generated strong return on investments to home buyers in the long-term, and is expected to continue to perform well due to the positive steps like reduction in interest rates, interest subsidy to home buyers, increased mortgage penetration and ease of FDI norms in the real estate and construction sector.
Commenting on the report, Sudhir Pai, CEO, Magicbricks, said: “The urban population of India is anticipated to grow by nearly 36 per cent to over 580 million by 2030. This along with GDP growth, job creation and mortgage growth is expected to lead to a substantial increase in demand for housing in India. This report is our latest endeavor to decode the asset class and educate homebuyers about the major factors such as demographics, economic development, regulatory environment, and physical and social infrastructure that could impact their investments.”
Commenting on the real estate industry’s performance and way forward, Neeraj Bansal, Partner and Head, ASEAN Corridor, and Building, Construction and Real Estate Sector, KPMG in India said “India holds a strong potential for residential property market growth, which is likely to witness considerable price appreciation over the next decade, with property market fundamental drivers, such as GDP, rapid urbanisation, shrinking household size, higher share of working age population, and mortgage growth expected to grow at a higher pace in India. Globally, every sixth person getting urbanised is an Indian. The government has released several programmes on mission mode in urban infrastructure, housing and mortgage finance to tap the opportunity offered by the urban blessing. It is envisaged that by 2030, the real estate and construction sector in India is expected to become the third-largest globally, doubling its share to over 15 per cent in the Indian GDP.”
Mritunjay Kapur, Partner and National Head, Strategy and Markets, KPMG in India said, “For any country its housing sector can be an engine of growth. For a nation like India, which has been witnessing rapid urbanisation over the past decade with an addition of over 10 million people to its urban population annually, the need for housing has become even more important. The Indian government has undertaken several policy initiatives to support the Indian real estate and housing sector.”
On Magicbrick’s association with KPMG in India for the report, E. Jayashree Kurup, Head – Content and Advisory, Magicbricks, said: “Residential real estate is a unique asset that appreciates in the long term even as it can be put to rigorous use. Magicbricks and KPMG have taken a deep dive into the various aspects of this sector to benchmark it against global markets and assess its returns in the long term. It will be of use to retail buyers, industry and the finance sector to be able to assess the short, medium and long-term returns on investment and the factors that drive it.”
Key insights from the report:
· Price discovery of a housing project is an important phenomenon in real estate, which is influenced primarily by three factors: livability, accessibility, and proximity to employment hubs.
· Residential properties in core areas of a city tend to be more insulated from several factors, such as the slowdown in the real estate sector and domestic or global economy, owing to it being primarily an end-user-driven market with physical and social infrastructure in place
· Housing mortgage in India has grown at one of the fastest paces in the world, supported by government policy reforms. The trend is expected to continue as the housing mortgage penetration in India is one of the lowest (9 per cent) in the world.
· Property prices start weakening when inventory overhang exceeds the range of 24-30months
· Rapid supply during the bull period without corresponding absorption results in building up of inventory of unsold units with developers in subsequent years. The mismatch between demand and supply therefore creates pressure on property prices at a certain level. Our analysis reveals that unsold inventory with developers to the tune of 24-30 months of demand starts creating pressure on property prices.
Major trends in the Indian residential real estate
· The sector is gradually consolidating with limited number of regional players gaining strength in their respective local/ regional markets and increased national presence. Real estate sector is highly capital and labour intensive in nature and projects especially large ones normally have long gestation periods of three to five years and above. Hence, in order to meet huge funding requirements, mitigate risks and share resources such as land and technical expertise; several regional, national and international players have partnered with others
· The sector has witnessed an advent of large domestic and foreign corporates successfully venturing in the Indian real estate sector. Over the past decade, a number of Indian conglomerates and business groups have diversified and included real estate in their business portfolio
· The asset classes have expanded and newer concepts such as mixed-use developments, integrated townships, luxury housing, branded homes, serviced apartments, SEZs, retail zones and specialised malls, hospitality, industrial parks and clusters etc. have emerged.
· Institutional funding especially from private equity and NBFCs are among the largest financiers of the real estate sector.
· Several players have increased their presence across the value chain of real estate