Month: February 2021

 

Reduction in Circle Rates for 6 months will catapult the Real Estate Sector. The Delhi Government’s decision to slash circle rates for residential, commercial and industrial properties in Delhi has come as a huge bane for the real estate sector after the pandemic.

The circle rates have been slashed by 20 percent flat until September 30, 2021. The next six months will catapult the real estate sector and it will help the “fence-sitter buyers” to make quick decisions.

“The reduction in circle rates has been a long-awaited and highly controversial topic, especially for properties falling in “A” category, where the circle rate value of properties was much higher than the actual market value. The reduction in circle rates will incentivize property deals in Delhi. However, this reduction has been announced for a limited period of time and the government needs to address this with a long-term perspective.”

The pandemic has taken a toll on the real estate sector where the vacancy rate increased and there was a decrease in the occupancy rate. The decision to slash circle rates by the Delhi Government is beneficial for everyone and will attract new buyers to the market. “Market rates, which are invariably higher than circle rates, are nevertheless influenced by them as they act as a floor price for any property transaction. By bringing down the circle rate, the Delhi government seeks to create a conducive environment for accelerated housing absorption in the market.”

Although the reduction of circle rates is only for a period of six months at present, it is expected that the Government will keep in mind the interest of buyers and sellers of properties and address this decision from a long term perspective after looking at the benefits it provides to the nation’s economy.

2020 was a dreadful year that brought on some really unwanted and unprecedented situations before the real estate property market. The Coronavirus pandemic caused a severe cash crunch in the market. Where the prices of properties mostly remained unaffected in big cities, the prices of houses plummeted by 5% in many of the small cities. Many housing projects were shelved as there was an acute shortage of construction workers and real estate investment also fell down due to the lack of funds among investors. After enduring that storm, the sector is now looking towards a joyful recovery. We list some of the factors that could dominate how the real estate market might perform in India, in 2021.

1) Demand for Properties will climb up

In 2021, there are high chances of seeing a huge growth in employment opportunities across various sectors. As a result of this, plenty of people will migrate to cities. Ready-to-move-in properties will continue to be preferred over under-construction projects, as buyers consciously don’t want construction delays and look out for homes where they can immediately set up a comfortable and secure space of their own.

2) Continued low-interest rates

The Reserve Bank of India (RBI) has generously reduced the repo rate through consecutive cuts and now has left it unchanged at 4%, because of high inflation.  Home loan interest rates would, thus, continue to hover at the sub – 7% annual interest level for a large part of 2021. Buyers planning to benefit from a low interest rate regime must speed up and lose no time to complete the transaction.

3) Changes in workplace culture

This is especially true for IT/ITeS companies where the work-from-home model or the ‘hybrid model’ is increasingly becoming an integral part of their long-term strategy. Business CEOs all around the world are already looking to minimize costs and real estate sadly does become the prime target. The trend of consolidation at one place which was being considered by companies may now get realigned to the hub and spoke model. We may thus see smaller properties being taken up instead of single large offices.

4) Housing will prevail as the buyer’s market

India’s realty sector is going to remain a buyer’s market for the foreseeable future. This means, developers will have to be willing to negotiate deals, based on terms and conditions that shouldn’t be tilted in their favour. Amidst rising pressure on builders to shoot up sales numbers, they will also have to devise new strategies to offer cost benefits to buyers.

5) Foreign Investors will continue to bet on Commercial Real Estate

Foreign investment continues to be high on the rent yielding asset segment. Even during the lockdown, there has been good demand from foreign investors for quality assets in India, thus showcasing the confidence in the sector. Similarly, from an institutional investor perspective, REITs will continue to be the key theme and we will have more REITs hitting the capital markets in 2021.