Gurgaon realty bounces back from slowdown
Overcoming a host of challenges, the city’s real estate sector showed signs of a comeback in the latter half of 2017gurgaon Updated: Dec 30, 2017 22:59 IST
Year 2017 turned out to be a challenging one for Gurgaon’s real estate sector, as developers found it almost impossible to manage, what they said, was the triple whammy of demonetisation or recall of high value currency notes, implementation of Real Estate Regulatory Act 2016 and finally, the Benami (Transactions) Amendment Act, 2016.
Experts said that these three widely debated and documented moves changed the very dynamics of the city’s realty sector, as capital was sucked out of the system and investors fell on hard times. The fallout? Very few new project launches, price correction, little or no product promotion and a negative sentiment pervading the sector, as some developers almost went bankrupt. However, while sending builders into a nervous huddle, the set of tough building rules gave homebuyers a much-needed weapon to take on the system.
A top developer, in fact, claimed that unlike previous government, the Khattar regime wasn’t willing or ready to come to the rescue of the real estate sector. However, amid the dark clouds, there was a silver lining as affordable housing brought some cheer and money to the market. The second half of the year saw some recovery in the industry, with an increase in demand for Huda (Haryana urban development authority) plots, builder floors and ready to move in apartments. In sectors 22,23, 27, 45, 46, 57, 38,43, DLF, South City 1 and Sushant Lok, property prices went up by 15-20%.
The improvement in selected micro-markets in the city, however, is not going to take the industry northwards, say realty consultants. The reason, they said, is that the capital to complete real estate projects, a majority of which are either delayed or abandoned, is not available to developers.
Sanjay Sharma, a Gurgaon-based realty consultant, claimed that the RERA has considerably increased the risk cost of capital available to the developers and as a result, many projects remain stuck and delayed. “Earlier, the risk capital was being borne by the buyers and if something went wrong, they suffered. However, RERA has changed the equation. Now, developers can’t use buyers’ funds for unlimited period and without any fear of penalty,” Sharma said.
With banks not willing to give loans directly to developers and preferring, instead, to leverage the buyer’s credit, private equity was the only option of funding, which is 5-8% higher. “Private equity funds are very demanding and they work on strict timelines, which made it difficult for the industry to get money. Unless there is a major intervention (by the government), things will not improve,” Ramesh Menon, CEO, Certes Realty, said.
The lack of infrastructure in new Gurgaon sectors and the inability of the government to complete crucial infrastructure projects such as the Northern Peripheral Road (NPR) or Dwarka Expressway, Central Peripheral Road and the Southern Peripheral Road (SPR) also dampened the mood of end-users. “Properties on Dwarka expressway and near CPR that were sold at ₹8,000 per square feet on the promise of assured return are not fetching more than ₹6,000 per square feet in the market,” Menon said.
Developers, in fact, admitted that 2017 was a year when artificial demand was sucked out of the system. “The speculation in the real estate industry has almost ended. Though 2017 was a very challenging year, we expect things to normalise next year. Affordable housing and completion of crucial infrastructure projects will boost the market,” Praveen Jain, vice chairman, Naredco, said.
Kamaljeet Singh, vice president, Bestech, opined that the market is returning to normal slowly but surely and things would be easier from next year. “The buyers are returning, albeit slowly, and funds are now available. But now, the focus would on end-users,” Jain said.
While major growth areas in Gurgaon, including SPR, NPR and the Golf Course Extension Road, saw dismal growth, it was the micro-markets that kept the momentum going in the last six months. “The products which buyers can invest in right now have made comeback. Property prices have risen by 15-20% in DLF, Sushant Lok and South City, as people want ready-to-move-in properties,” Pankaj Tomar, CEO, Ishadi Real Estate Ltd, said.
Both developers and experts said that lack of clarity among policy makers with regard to land-pooling and transit-oriented development, under which the floor area ratio (FAR), has been increased, also did not help the cause of realty. They, however, admitted that affordable housing had been the savior for many of them and in the coming two years, more affordable projects and delivery of delayed homes is the key to revival of realty in Gurgaon.