Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members


After a dismal 2016, the real estate sector has started to look up. But how will it be placed by 2020?

The real estate sector performed very poorly in the fourth quarter of 2016. The sector per say was just about managing to hold on to the precious momentum that it had gained in the first half of 2016 but the policy intervention by the government, in the last quarter of 2016, brought the real estate sector on its knees. Since then the market has certainly picked up. For some developers March 2017 has been one of the best months for business since October 2016.

The market is truly picking up but the broad question remains – Is this positive run of the market sustainable? More importantly, how will the market be placed in the long run? Read on to find out:

Even before we dwell on how the sector will look like in 2020, it’s imperative to look at how the sector has performed, especially in the recent past. This single factor will hold the key as to how the sector will perform in the short to medium term. There is a general consensus that the sector has not been doing well, especially in the recent past. This to a great extent is true. The good thing however, is that developers too have now started to accept this issue and are more than ready to address the problem. While there is a certain, level of truth about the sector performing well below its standard, it is not the whole truth.

A closer look at the performance of the residential property market in the past six years reveals that both launches and sales have been considerably decreasing since 2010. While both launches and sales have come down over the years, the launches have seen the maximum drop. From a high of close to five lakh units that were launched in 2010, only around 1.80 lakh units were launched in 2016, a fall of around 63 per cent. Sales too dipped from a high of over 3.50 lakh to 2.44 lakh between 2010 and 2016, but the fall was not as drastic as witnessed by new project launches. Between 2010 and 2016, sales dropped by around 32 per cent. The poor state of affairs in the real estate sector is quite apparent from the fall in new project launches and sales over the past few years. On the contrary the picture in the office property market has been more than rosy.



Except for a minor dip in 2012 and 2013, the office market has performed consistently well since 2010. Except for the blips in the two years mentioned earlier, transactions in the office market have been close to 40 million sq ft, per year, since 2010. The only problem that the office market faces, in the present day, is that completions have not been able to keep pace with demand. The paucity of quality supply coming in has pushed vacancy levels in good stock into single digits, across micro markets. In recent times, the lack of quality supply has led to a drop in transactions. Thus it is clear, while the office market has been performing consistently well over the years, the listless performance of the residential property market has contributed to the poor show of the sector.


It is a known fact that the root cause of most problems plaguing the real estate sector has been the delay in timely delivery of projects. As a problem, this is the most visible, but there are other issues as well, which if were well taken care of would have largely not let the perception of the sector slide, the way it did. The first problem is the question of affordability. In most mature markets, especially in Gurugram, the available stock is priced anywhere upwards of `1.50 cr.

Bulk of the demand however, is available in the price bracket of `80 lakh to `1 cr. This mismatch, coupled with the fact that the homebuyer is not confident that the developer will meet the timelines as agreed upon, has largely driven homebuyers away from the market. Secondly, there are many instances, especially along the Dwarka Expressway in Delhi NCR, wherein homebuyers are not ready to take the delivery of units, even after the completion of a project. The major reason why homebuyers refrain from taking delivery of such projects, is that such projects do not have the basic infrastructure to sustain human habitation.

For example, in case of Dwarka Expressway, even if the project is complete, people will not be ready to take possession/delivery of the units for the simple reason that the Expressway is not complete, its broken in patches and the approach roads, to the  Expressway, from the Delhi and Haryana sides are yet to be constructed. In this case, the developer’s job was to complete the project but since the concerned Expressway could not be completed on time, even completed projects did not find many takers along this stretch.

The third factor is perhaps the most important one. It has generally been seen that when a developer markets his project to prospective homebuyers, a red carpet is laid down. However, once things start to go wrong, the same homebuyer is given a cold shoulder by the developer. In such a situation, the developer gives the homebuyer a miss.

Typically in such cases, if at all someone is deputed to listen to the grievances of the homebuyers, it is a junior employee. The difference in treatment when selling a housing unit and when a homebuyer wants to share his concerns with the concerned office of the developer, has largely contributed to lack of trust between the two most important stakeholders in real estate industry. Things are however, not bad in the present day. The above problems existed even when the sector was doing well but to a great extent were rubbished by developers. Now when the residential property market has almost come to a standstill, the developers have accepted their mistakes and are ready to take corrective action.


As already stated, developers are now more than willing to accept the fact that one of the major problems that has contributed to the falling fortunes, especially of the residential property market, has been the delay in handing over the projects. Most importantly, they are aware that their (read the developer’s) perception has gone bad because of a slowdown in the sector. Even they believe that the only way home buyers can have confidence in the sector is when projects start being delivered on time. There is also agreement that even though too much water has flown under the bridge, one needs to be positive. While accepting mistakes is one thing, building the necessary confidence among home buyers is a different matter. In the present day, a home buyer is not naïve. He is well educated and travelled.


The homebuyer in the present day is a marked departure from the past. The homebuyer of today is more informed, educated and well-travelled. This too, to a large extent, explains the fact why homebuyers have moved away from the market, especially in recent times. There is a dire need to bring in the necessary confidence measures that will embolden homebuyers to come back to the market. In a substantial way, the Real Estate (Regulation & Development) Act (RERA), 2016, which will shortly come into force across states, should be able to bring back homebuyers into the market.

Regulations apart, the supply side needs to create the atmosphere wherein the homebuyer feels confident to enter the market. As already stated, the homebuyer of today is more informed, educated and well-travelled.


  • Well-travelled and educated
  • Exposed to international trends and lifestyle
  • Is aware of his rights
  • Is ready to take on the developer, if things go wrong
  • Is ready to wait for the opportune to buy a house

Against this backdrop, stakeholders from the supply side need to stick to some basics. The most important thing that needs to be done is that developers need to be positive with regards to their project deliveries. Delay in the timely delivery of projects has been the bane of the sector.

While a delay of six to eight months is an accepted norm, there have been instances of projects being delayed by more than seven to eight years. Now even stakeholders from the supply side realise this and stress on the point of timely deliveries. ‘Execution is the key,’ was the mantra that was echoed. The importance of such a statement is visible even today. Most of the sales that have taken place in February and March, in 2017, have been in projects that are either ready-to-move-in or where the completion is six months away. The other factor that homebuyers typically look at, especially in the present circumstances, is the track record of the developer.


  • Stick to their word
  • Ensure timely delivery of a project
  • Be upfront with the homebuyer
  • Have an effective grievance redressal system

Going forward, the homebuyer in India will mature further. The stakeholders from the supply side have accepted this fact and are ready to do things within their ambit to improve sentiments in the sector. In order to ensure that the sector moves up in the future, the government on its part has been trying put in place certain rules that will help the sector grow in a much more evolved manner. With the necessary  assistance in the form of required legislations, we believe that the real estate market should be a much more mature market by 2020.


The government has been doing its part by providing the sector with the necessary assistance that will help it grow into a mature market in the future. The most important cog in that wheel is a single piece of legislation that has gradually started to take shape.

We believe that by 2020 this legislation would have overcome all the minor niggles and would help the sector to grow. At one level, the real estate sector, before the implementation of the Real Estate (Regulation & Development) Act (RERA) 2016 in May, was highly regulated but there was no single regulation that brought all the stakeholders under one umbrella. Going forward, RERA will change the manner in which the real estate sector and all the necessary stakeholders will function within the country. It clearly lays down the guidelines by which developers and real estate agents will function within the sector.

It also deals in great detail about the repercussions, if developers and real estate agents deviate from their functions as mentioned by the Act. Stakeholders from the supply side will be the most impacted, as they will need to realign their business model so that it complies with the provisions of RERA in the state where they operate. There is no doubt that stakeholders from the supply side will face teething problems when realigning their business. It is however; worth nothing that even though they have their apprehensions on certain provisions of the Act, most of them agree that there was a need to bring about RERA to rectify things that had previously gone wrong in the sector. The Act however, places the homebuyers on a level- playing field with stakeholders from the supply side. For starters, with the wealth of information that will be made available to them, they will be in a much better position to make an informed decision, which will be a complete departure from the past. The problem that homebuyers will need to grapple with is the fact that they will need to understand the information that is available to them so that they can truly make an informed decision. Like with the players from the supply side, even homebuyers will need to grapple with the wealth of information that RERA will provide. Along with RERA, REITs too are expected to be become a reality soon.


It has been more than 10 years that there has been talks of Real Estate Investment Trusts (REITs) becoming a reality in the Indian real estate sector. The wait however, now seems to be over and in the very near future REITs should become a reality. In June 2016, market regulator Securities and Exchange Board of India (SEBI) relaxed norms that would attract realtors and investors towards REITs. It was generally believed that within a year, the first REIT would be listed, but that will take some more time. Companies have however, started their move to get their InvITs listed. IRB Infrastructure and Sterlite Power Grid are some of the companies that will get their InvITs listed. In the meantime, the government has further paved the way for listing of REITs. In its policy review, the Reserve Bank of India (RBI) allowed banks to invest in REITs and Infrastructure Investment. Trusts (InvITs). The guidelines as per which banks can invest in REITs and InvITs is as follows.

Banks can participate in REITs and InvITs within the overall ceiling of 20 per cent of their net worth permitted for direct investments in shares, convertible bonds/debentures, units of equity-oriented mutual funds and exposures to Venture Capital Funds (VCFs) [both registered and unregistered], subject to the following conditions:

  • Banks should put in place a Board-approved policy on exposures to REITs/InvITs, which lays down an internal limit on such investments within the overall exposure limits in respect of the real estate sector compared to the more developed economies. Proposed legislations like the GST and the upcoming trading in transferable development rights and dealing in land or immovable property. As mature place to operate in 2020. and infrastructure sector INCREASED TRANSPARENCY
  • Banks shall not invest more than 10 per cent of the unit capital of an REIT/InvIT
  • Banks should ensure adherence to the prudential guidelines issued by RBI from time to time on Equity investments by Banks, Classification and Valuation of Investment Portfolio, Basel III Capital requirements for Commercial Real Estate Exposures and Large Exposure Framework, as applicable

The government on its part has done its bit to make REITs a reality; the onus is on the stakeholders to come up with the products. In a market where an assured government instrument gives returns between 7.9 per cent and 8.65 per cent tax free, the success of REITs and InvITs will lie in them giving a return that is higher than the assured government securities. This is where the skill of the REIT manager will be put to the test. The success of REITs in India will lie in providing attractive and constituent returns on a regular basis. By 2020, REITs will definitely be present in the Indian real estate market, but there will not be many. By 2020, there would be one or two players from the mature real estate markets that will have their REITs listed. This will certainly give more impetus to the real estate sector. REITs will provide the much needed liquidity to the sector and allow retail investors to come back to the market in a more structured manner. Institutional players too would be there but as already mentioned, it will depend on factors like delivery of attractive consistent returns and presence of a more transparent market.


In spite of all the shortcomings, the Indian real estate sector has great potential. For starters, the huge mismatch between the demand and supply of houses is a big opportunity. Second, even though the office market has been doing well over the years, there has not been much investment in development of quality office space. This has led to a situation where vacancy has been pushed to single digits, especially in quality stock, across micro markets. Even in terms of size, the market is still very small  compared to the more developed economies. Proposed legislations like the GST and the upcoming industrial corridors will only add to the growth of the sector. Along with  initiatives  like  implementation of RERA and paving the way for launch of REITs, the incumbent government has also made it more attractive for FDI inflow into the real estate sector. In November 2015, the government removed all restrictions on FDI in the real estate and construction sector except for a three year lock-in period for select projects. FDI, however, will not be permitted in construction of farmhouses, trading in transferable development rights and dealing in land or immovable property. As a result of these initiatives, FDI coming into the sector has grown considerably over the past two years. What is heartening to know, is that both commercial and residential property markets have witnessed significant rise in private equity. While such funds come at a higher risk, because of the associated risk, increasing transparency levels within the sector will ensure that the sector starts getting funds at an attractive rate. With the necessary legislations in place, the sector will certainly be a more mature place to operate in 2020.


By 2020 we believe that RERA will be in force across all the states and stakeholders from the supply side too would have remodelled their business model in accordance to the provisions of the Act. All this will only benefit the sector. Transparency levels within the sector have been increasing in the past few years but the implementation of RERA will raise it to an altogether different level. This will be the biggest gift of RERA to the real estate sector. This single factor will alone change the fortunes of the sector. On the supply side, increased transparency will enable stakeholders to access institutional funds at a competitive rate. This will in most likelihood have a bearing on the price at which the final product will be offered to homebuyers.


• Seamless flow of information to take an informed decision
• Attract institutional players to the sector
• Funds at an attractive rate could have a bearing on the price of the end product
• Will help the sector grow

For consumers it will mean access to information that will help them make an informed decision. Instances of homebuyers being duped should be less and timely completion of projects should be on the rise. Increasing transparency is certainly a sign of a maturing market, but such markets bring their own share of challenges.


A mature market is good for homebuyers who invest in a house for self-consumption but it’s not such a good place for investors. In a mature market returns will come down to more sane levels than those witnessed in a growing market. It will be a challenge for investors to make money, going forward as the Indian real estate market matures. Even in the present day, the lacklustre performance of the real estate sector has driven away investors from the market.

The only form of investment that is available in real estate is through professional managers. The days of direct investing and making a large profit in real estate are over. The way the market is performing it will be hard for retail investors to get the desired returns through investments in real estate. While demand for professional fund managers in real estate will increase, not all of them will be successful. For fund managers to be successful in the near future, they will need to have a track record, deliver what they have promised to the investors and take care of the interests of the investors. The market will certainly be more mature by 2020 and by then the initiatives of the government will also start taking shape. Over the past two years apart from arming the sector with the necessary legislations, the government has also taken initiatives that will help the sector grow.


‘Housing for all by 2022’ is one of the major focus areas of the incumbent government. To this end, the government from time to time has been providing the necessary impetus for growth of the affordable housing segment, the most recent push being provided by the Union Budget 2017–18. As a result, most developers have come up with their affordable housing projects. A prime example of such an initiative is Chembur Central by XRBIA and Crystal Group. The project location is at a commutable distance of 40 minutes from the business districts of Bandra Kurla  Complex, Lower Parel and Andheri. The best part, these housing units are available at less than half the prevailing capital values in the locality. The reduced carpet area of the housing units in the project at 186 to 306 sq ft explains the attractive price points at which they are available. When it comes to affordable housing, it is generally thought to be far away from the city and lacking basic infrastructure. While such projects will also be there, examples like the one mentioned in Chembur could be the new bandwagon to which developers may like to get hitched. Such examples would however, only be possible if land is made available within the city. Towards this end, the developers would require the help of concerned government agencies. Going forward, the affordable housing segment that caters towards providing mass housing should also take off. The success of such projects will lie in the government providing land and the necessary infrastructure  so that homebuyers find it attractive enough to move into those units. Along with providing housing for all by 2022, the government is also in the process of developing smart cities.


To stop the present day cities from dying a slow death, the government has plans to put systems and processes in place that will help to manage them much more efficiently. Towards this end, the government has finalised a list of 100 smart cities and another 500 cities that will be covered under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT). These cities will not be greenfield projects but existing cities that will have systems to help it manage itself in a much more efficient manner. Since getting such systems, as per the needs and requirements of each city, it will take time before they will even qualify as a smart city. It will be difficult to see cities in full flow by 2020, there will be islands of excellence that will be created through intelligent interventions. Examples of such interventions can be visible in cities like Surat and Visakhapatnam. There is no denying the fact that the real estate sector by 2020 is going to be a much more mature market than what it is in the present day. However, which are the sectors that will hold the most promise in 2020?


The sectors that will hold most promise in 2020 are the commercial (read office space), affordable housing and logistics. A developer or an investor should realise that while it is important to factor in external factors before planning an entry into the real estate sector, it is equally Important to have an idea of one’s core competence and pedigree. There are enough examples in the past from which developers and investors can take lessons. The lack of quality supply in the commercial space has pushed vacancy levels to single digits across micro markets but vacancy levels in the not so good stock or in far off locations like Manesar and Greater Noida are in double digits. At a different level, the commercial office space is going through a consolidation phase. It is becoming a much more focussed place for serious players. This is happening because of two reasons. First, as already stated, the days of direct investing in real estate are over. This means that going forward, real estate development will become more capital intensive, it will require more equity, which in the commercial space will chase established players and especially those with a proven track record. Similarly, global occupiers want to stay with players with whom they have an existing relationship. Thus going forward, the commercial real estate surely looks attractive from the pricing point of view. REITs should become a reality soon and that will only add to the shine of the commercial property space. Globally, it is generally understood that when a public market is created for an asset class, capital values of that asset class move up. A similar story should be written in the Indian market as well, when REITs become a reality. The affordable housing sector too holds a lot of promise but such schemes need to be backed by a robust physical and social infrastructure. Typically, affordable housing projects will come up in the periphery of major cities primarily because land is cheap in those locations. These peripheral areas apart from having a social infrastructure of their own need to be connected with the main city centres and employment centres. Going forward, the logistics sector holds lot of promise. The entire sector will change with the implementation of GST. While the sector holds lot of promise, there are not many established players in the logistics space, especially from the development side. There is also paucity of land available at an affordable rate in key locations.


There is no denying the fact that the real estate sector will be a much more mature market in 2020 from what it is today but relevant stakeholders need to do the needful for the market to reach that stage. The legislations that the government has put in place will certainly clean up the market and make it more transparent but relevant stakeholders too need to do their bit. The most important aspect is the timely execution of projects.

Developers, who till the very recent past had been the favourite whipping boys, need to deliver on their promises. This is the single factor that will build the necessary confidence among buyers to return to the market. A little help from the government will also be required, especially with regards to completing the necessary infrastructure projects  on time and also providing land at a reasonable cost, especially for affordable housing projects.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

Leave a Comment

Your email address will not be published.