Housing sectorcontributes 6% of GDP and often beencalled the “Engine of Domestic Growth”.
The importance of the housing sector isalways regarded in GDP growth of the country due to its significantcontribution towards the national economyand nation-building. Also, investment inhousing and construction sector has the multiplier effect on employmentgeneration and industries such as steel, cement, paint, furniture, etc. Therefore, providing housing for all always remains the most important agenda forthe political parties.
Although the housing sector plays a pivotal role in the economy growth, it is also regardedas the most unorganized sector due tounfair business practices, money laundering and a safe haven for black money.Thus, to facelift the unorganized sector, the central government has initiatedseveral policies and structured tax reforms to transform it into moreaccountable and transparent sector. The tetralogy tremor of Demonization,RealEstate (Regulation and Development) Act (RERA), Goods and Service Tax (GST) and Insolvency and Bankruptcy Code (IBC) hasthrashed the unorganized sector so woefully, that it left no window open for unscrupulousdevelopers in the real estate ecosystem. The RERA act clearly states that incase of delay and default developers has to pay fine or serve the jail term,whilst, IBC emphasized in the expeditious processof liquidation of insolvent developer assets, to repay its secured creditors atearliest (e.g.
Employees, Banks, Financial Institutions and Home buyers). Otherthan this, the implication of the GST has curbed the sale of under constructionprojects because of high prices compared to ready to move in projects, wherethere is no impact of GST. Subsequently, the ready to move in unsold inventory is getting positive traction from the homebuyers compared to project at under construction stage, hence, putting pressureon under construction projects in the market for timely completion andimproving the sales volume. The stringent RERA and IBC normshave created such an environment, where an unaccountable cash crunch developercannot operate, more specifically, debt-ladendevelopers with an ineffectual execution track history finding difficultto comply in this organized ecosystem. Also, the central government move has not only weeded out unscrupulous developer from the sector, but also put consolidation card on the table for cashcrunch developers. Subsequently, the coming time frame will witness a surge in consolidation activity and acquisitionof distressed assets by big developers and Private Equities. However, the previous year itself has witnessed majorconsolidation and partnership in real estate sector between major developers, fewof them mentioned below: -· Nirmal and Godrej partnership for a residentialproject in Thane on the 14-acre landparcel.
· Omkar Realtors and Shapoorji Pallonji Real Estate for a residential project in Mumbai.· Eros Group and Bharti Group for a residentialproject in NCR.· Lotus Green and Tata Housing for a residentialproject in NCR.Similarly, small developers aremonetizing their land to support the completion of their project, in oneinstance a Ghaziabad-based realty developer, who had acquired a 20-acre land parcel inMumbai in 2010, sold it outright to a local developer.Furthermore, the major focus in2018 would be on those under construction residential project, where the developer has already sold out the majority of inventory irrespective of the slow pace of construction and diverted its cashflow in some other projects. These projects would find difficult to raise thecapital for the completion of the projects, moreover, these distressed projectswould have the least chances of acquisition by the big developers or by the PEinvestors due to low margin of profit/return. While the consolidation of TierII and III developers is likely to happen in 2018, the year might witness the eliminationof amateur developer from the ecosystem and a large scale expansion ofdiversified players in the sector, such as Godrej, Tata, and Mahindra. Also, PE investors are likely totap the opportunity by infusing more capital to acquire distressed assets at a discounted rate.
Small developers would belooking for tie-ups with the big player to sustain in the market.