Rating agency ICRA maintains negative outlook for residential real estate, stable outlook for commercial realty
ICRA has maintained a negative outlook for the residential real estate (RRE) segment due to high inventory, weak affordability and muted demand and a stable outlook for commercial real estate (CRE) segment.
The RRE has witnessed a prolonged down cycle owing to high inventory, muted demand, weak affordability and declining investor interest. However structural changes over the last two years in the form of implementation of Real Estate Development and Regulation Act (RERAD Act) and Goods and Services Tax (GST), along with increased government focus on affordable housing, have raised expectations of demand revival in the industry, ICRA says in its year-end assessment of the real estate sector.
It also notes that a broad-based recovery in demand across the country appears to be some time away. States such as Maharashtra and Karnataka which have seen relatively better implementation of the RERAD Act are benefiting from increasing confidence of end-users, it says.
Demand in the premium and luxury category of residential segment are likely to remain suppressed for under-development projects due to the increasing preference for completed properties under the GST regime.
New project launches had been severely curtailed in the calendar year 2017 due to the impact of demonetisation and transition issues in RERAD Act implementation.
While certain cities like Bengaluru, Mumbai and Pune have witnessed a notable pick-up in new project launches in 2018, other markets like the National Capital Region (NCR) may take longer for major uptick in project announcement due to existing inventory overhang.
Due to the high compliance obligations imposed by RERA Act, new launches from small developers have reduced, thus market share is being garnered by the larger developers who are better placed to operate under the new regulatory framework. This process of market share consolidation is only likely to strengthen over the coming years, it notes.