Indian real estate is going through a rapid transformational phase. The wind of development is brewing across different property solutions. However, the core driving factors of the change are increasing urbanization, a rising middle class, and the changing economic scenario of Tier II cities. This presents a mixed situation, pegged with great opportunities and challenges. Developers are eyeing the upcoming union budget of 2024, which can provide enough thrust for growth in the sector. In this blog, we try to delve into the present situation of the real estate sector and how it can channel the energy and resources of a real estate development company for greater benefits:-
The big rope from Budget: After the Lok Sabha election, investors, developers, and buyers are expecting great relief in the budget, which is yet to be presented in mid-July. It is really important to note that the sector’s performance and overall economic scenario greatly depend on the government's allocation and preference to propel the growth of this sector. A recent survey conducted by CREDAI and Colliers highlights the key concerns of the developers as follows:
- Respite in GST: Developers are eagerly seeking GST-related input tax concessions. This will not only reduce the tax burden on the developers but also encourage them to bring new projects to the market. Besides, it will also impact the property prices and bring them down, which will attract more buyers to go for new projects.
- Rationalizing Tax and Interest Rate Deduction: Rising construction costs are yet another challenge that makes property costly. As per the survey data, more than 50% of developers are expecting that a new tax regime or provision can help them rationalize taxation. Similarly, a significant change in interest rates can also help make the project more feasible and financially viable.
- Strong demand push: the survey further reveals that nearly half of the surveyed developers believe that the sectoral demand for the properties will continue in 2024. The positive development among developers has been fueled by strong demand for Tier-I and Tier-II cities in the past couple of years.
- Price Hike Expectancy: Property experts and developers also expect a price hike that will continue in the coming years. The first quarter of 2024 shows 10% growth in property pricing following the 9% year-on-year growth of 2023. similarly strong domestic demand for various projects, which fuels this trend for longer.
The regional paradigm: As Tier I cities are already dominating the property market, a sweeping change in Tier II cities can also be experienced. The emerging demand for residential properties is gaining momentum as an attractive residential destination. As per real estate data analysis firm PropEquity, the top 30 cities in the Tier II category witnessed 11% year-on-year sales growth in the last fiscal year. The prominent factors in this growth are:
- Infrastructural Development: Government-led various initiatives and provisions fueling infrastructural development. Government support for development helped improve the quality of life and connectivity. As a result, various new modes of transportation, improved healthcare facilities, and educational institutions made such places more attractive investment destinations.
- Affordability: Since Tier II cities are less costly than Tier I cities, most middle-class buyers are moving towards such cities. Most young professionals and their families find it best to settle for good without adding financial burden. Besides, many government officials and bureaucrats also choose Tier II cities as their second home.
- Economic Advancement: Such cities are also home to many small and medium enterprises (SMEs) and industries due to the ease of legal formalities, regulations, and cost advantages. As a result, Tier II cities are experiencing a greater economic boom. Various new job opportunities are being created, which is why the migration of working people can be observed.
Above all, Tier II cities in the west zone, especially Gujarat, witnessed 70% growth in the total sale of housing projects. The regional variation across the sector may vary, but more importantly, the growth is because of specific industries, educational institutions, and other such facilities.
NRI-led demand: The Real Estate Developer
’s Sentiment Survey 2024 shows positive demand in real estate as non-resident Indians (NRI) are also taking great interest in this sector. More than 80% of developers expect a surge in property demands led by NRIs. The key drivers of this growth are as follows:
- Change in regulatory procedure: Recent developments in regulatory procedure paved the way for growth and allured NRI investors. Simplifying the property registration helped them find a new way to park their investment in a growth-driven country and sector.
- Growth-Driven Investment: Unlike many Western countries where economic slowdown and market fluctuation affect investment, a country like India is not only resilient enough to combat and ward off currency and market fluctuation. Thereby, an investor finds it suitable to look for avenues where his investment is not only secure but also appreciated.
- Back to the roots: On numerous accounts, the Indian government has not only supported its citizens residing abroad but also helped them in their hour of need. Most importantly, their upbringing, relatives, and other members all create a strong emotional bond. They strongly share an emotional connection to India and look to it as their plan and a reason they wish to have their own home in the country.
Sustainability: The next big challenge to meet
Real estate is going through a rapid transformation for investors and homebuyers looking for sustainability in the project. The dwindling interest in traditional projects is evident enough to validate the point that sustainability is a key aspect that assures greater returns along with lifestyle and health benefits. Eco-friendly practices are the next big thing in the real estate sector. It includes the following benefits:
- Homebuyer's Expectations: Besides various economic and civic amenities and benefits, homebuyers' expectations are shifting toward sustainable projects. Eco-friendly projects are their priority, which is why developers' old projects are not getting adequate buyers. Similarly, sustainable homes provide various investment benefits and help reduce the operational or management costs of such properties. Homebuyers are not just willing to choose a project that has plenty of good amenities but also has higher sustainability.
- Government Intervention: Various state-led incentive schemes are promoting sustainable projects. The government may offer tax breaks or incentivize developers for such projects. Besides, fast-track approval of these properties is also adding fuel to the growth of this sector. Under the government’s sustainable development growth, it is the need of the hour to minimize the carbon footprint and take appropriate measures to minimize greenhouse gases. GRIHA (Green Rating for Integrated Habitat Assessment) and TERI (The Energy and Resources Institute) are the initiatives to promote green buildings in India.
Managing the rising cost:
According to the survey data, over 50% of developers experienced a 10–20% increase in construction costs in 2023 in comparison to the previous year. The rising cost affected the profit margin of the projects, and despite the lower profit margin, it could not attract more buyers, and the sector experienced a steep downfall in sales. Moreover, the downfall was recorded at as much as 11% for the year 2024. To overcome such issues, some developers came out with alternate models. Such as:-
- Brand Integration: Many developers have come up with branded residences to attract buyers. The survey shows that nearly 21% of developers preferred to go for branded residences to mitigate the loss of dwindling profit. They are partnering with different hospitality brands to offer a unique living experience to travelers and visitors. Such integration offers augmented benefits and amenities along with premium brand services to address the needs of a specific segment of buyers looking for a luxurious lifestyle.
- The Backward Approach: According to report data, nearly 25% of developers have shown interest in backward integration and are willing to start selling plots instead of fully developed projects. Since the profit margin is greater than the well-constructed buildings, Furthermore, it is also very useful to reduce upfront costs and be able to address the needs of specific segments of buyers. Buyers who prefer to design and build their own houses are the main customers of such developers.
Changing marketing strategies:
Besides, tax relaxation and government support for technological advancement are two of the key factors around which marketing strategies revolve. Developers are more prominently embracing technology than ever before. Some of the key technologies are:
- Building Information Modeling (BIM): Building Information Modeling (BIM) is a new-age technology that enriches the experience of a buyer or investor. It’s based on a 3D modeling tool that represents the physical and functional features of a project. The advanced BIM software solution offers cost and lifestyle management information and construction sequencing as well. It helps developers increase efficiency through cost estimation, better planning, and design collaboration, and also minimizes project delays.
- Virtual Reality (VR) and Augmented Reality (AR) Technology: Virtual reality (VR) and augmented reality (AR) are tech-driven solutions that allow buyers to virtually visit the property instead of paying a physical visit. These solutions are used for remote property viewing. It can be used for NRI investors and for those who are unable to visit the property due to their preoccupied schedule or putting up in remote locations.
- PropTech Platforms: These are dedicated marketplaces that are designed to facilitate the online transactions of real estate segments. They bring together buyers, sellers, and property managers. The technical leverage of such platforms provides great transparency and convenience to the parties keeping and maintaining records of different real estate projects. It is also considered a great platform to generate funds for developers, and buyers can choose the appropriate property and park their money as per their tastes and preferences.
CONCLUSION: The Indian real estate sector shows a cross-roaring situation. On one side, developers are looking for certain benefits and support from the government to mitigate the risk and uncertainty, along with profit generation. On the other hand, augmented demand from Tier II cities presents a great opportunity for them. Though plenty of alternative solutions and strategies have been adopted by the developers, there is still much to be done for the survival and growth of a real estate development company
. The success of the sector primarily depends on successfully charting the solutions that can provide adequate growth and support. Embracing innovation and navigating the complexity will help the government and a real estate development company cater to the needs of a diverse range of homebuyers.
