India Reality: Some most commonly asked questions on forums I am a part of

1) How Is The Real Estate Sector (Housing In Particular) Doing At Present? Reasons Behind The Same.

• As per analysts, it is very evident that India’s real estate growth is mainly driven by new infrastructure developments, premium-quality land availability, greater public transit connectivity, ecological beauty and efficient pricing slabs that cater to each and every buyer’s pocket size.
• Secondly, row or town houses, premium villas and presidential villas are boosting realty sales since expats and NRIs like to invest more in such properties.
• Ever since the government allowed FDI in the realty sector, State governments leave no stone unturned to take care of basic infrastructure for housing societies so that potential returns in the long term come with surplus migration to their state with massive home sales which in turn translates to more revenue from taxes and basic levies.
• If you are noticing a slump in sales, it is because housing property rates are currently on the rise. Banks are giving lesser loans since property prices are too high. This is normal and alters itself with stabilized demand. There are always other channels for securing funds. 

2) The Housing Finance Sector On The Retail Side Is Seeing Some Distinct Traction? What Does It Actually Depict? 

• Various aspects like proximity to national highways, domestic/international airports, and extremely lucrative job markets are driving more and more people to fast developing B-grade cities that are boosting real estate growth in many states.
• If you are looking at real estate investment as an option of earning money, you might as well invest in a highway property to reap benefits 10-20 years later.
• However, the housing finance sector witnesses certain traction in the recent years due to two factors – capital requirements are always a challenge for banks to meet with minimum risk and since the housing finance sector demands more money than most loans, banks tend to lose money if an investor falls through in paying back his dues.
• There is nothing serious in this, the union budget of FY-16 boosts affordable housing by promoting the ban on the infamous ‘7-year capital gains tax exemption’ for any investment property held for at least 7 years or more.
• The boost to the ‘Home Renovation Scheme’ of rental property up until the end of 2015 will help banks recover some money with the help of profits earned via income tax on such rented and retail properties.
• Also, more than 5 Lakh Families are likely to get possession of homes by 2017 according to reports by PropEquity.
• Almost 1/3rd of these brand new homes will be delivered in the Delhi/ NCR (National Capital Region) itself!
• State Funding channels have horrifically dried up due to the increased dependence on NBFCs (Non-Banking Finance Companies) which is why banks are over-cautious at the moment. Time will sort out everything!
• Since the Reserve Bank of India (RBI) has allowed top real estate developers and major housing finance companies to raise more than $1 billion through their external commercial borrowings in order to promote affordable housing projects they have surplus access to cheap overseas funds that will help to reduce the overall costs of the property. This will reduce the loan amount you can seek from your bank.

3) Do You Think Banks And Housing Finance Companies Continue To Adopt A Cautious Approach Towards Funding The Sector? If Yes, Then Why So? 

• Partly yes, and partly no. Why? Since banks are not biased. They know what value a property holds. Their cautious approach is simply a safeguard against frauds.
• NBFCs have been able to offer tailor-made loans at competitive rates to all kinds of investors/buyers which is why banks are unable to provide loans at relatively cheaper rates.
• Their cost of funds might be lower, but debt markets favour NBFCs since they raise cheaper funds and have individual focus with simple processes that have helped them to keep the cost low and reduce overall interest rates on home loans which when passed on to the borrower doesn’t seem as much.
• The built-in risk pricing model is now a de-facto and viable business model for Tier II and Tier III cities which are a big plus for Low-income customers. It helps them gain improved living conditions, safer neighbourhoods and an enhanced overall social status thanks to cheaper finance.
• If banks lower interest rates, sales will go up. This is a small tactic to keep the demand-supply gap stable or else a lot of land will go away in a snap and you might not get to buy/invest in even 1000 sq. ft. of land!
• The massive allocation of Rs. 22,407 crore for sustainable housing development in the country will boost construction of more than 2 crore urban and over 4 crore rural housing unitsall across the country to realize the government’s aim of 'housing for all by the year 2022'. A sure shot success in the making! Banks will have to shell out loans for this!
• Once the ‘Benami Transaction Bill' comes into full force, banks will direct all that black money confiscated from the property market and help people get loans with that kind of money. 

4)  Where Is The Market Headed For? 

• To be true, land is easy to get! The real challenge is getting finances to erect something feasible and long-lasting on that land!
• Since there is a credible level of non-bank finance available in most developed cities, particularly from privately held equity sources, finances can be attained with additional bank funding. This means hitting two targets with one arrow. You get more money in lesser time.
• The DIRT refund measure set out in the current Budget will help people saving to buy property at lesser rates since it has low deposit interest rates.
• Homebuyer numbers will only increase since people need a house to live in! You cannot speculate on prices to go down, you need a roof over your family’s head!
• Since the Union Budget for 2015-16 has allocated Rs. 14,000 crore for urban housing development and retail, housing for all is a dream that will come true thanks to schemes like the Indira Awas Yojana, and Rajiv Awas Yojana, two highly promising urban housing schemes.

Prime Minister Narendra Modi's surreal vision of ‘homes for all by 2022’, when India finally completes 75 years of glorious Independence will definitely come true. Until then, you can use a well-thought out combination of funding from the state banks for social housing, privately held equity, nationalized bank funding and responsible local money lending to realize your real estate dream. It is risky in the residential market where prices increase, decrease and stabilize along with rent levels, but still yield profits for a smart player.

The decade of austerity is gone! Implementation of GST by mid-2016 and listing of all Real Estate Investment Trusts (REITs) in the country will lead to more cash inflow to the banks. Once that happens, the market will stabilize and the dream for ‘100 smart cities’ will soon come true!”