THE real estate sector in India had for years been dominated by unorganised players — including some shady characters — who had brought disrepute to the segment.

The acute shortage of supplies and the burgeoning demand from a rapidly urbanising society had given rise to massive gaps; which politicians, bureaucrats and builders took undue advantage of for several decades.

Things, however, appear to be changing in the country and hopefully for the better. The enactment of the Real Estate (Regulation and Development) Act — known as Rera — and the likely rollout of Real Estate Investment Trusts (Reits) are expected to lift the gloom from the sector.

Property prices in cities including Mumbai, Gurgaon (part of the National Capital Region — NCR — which includes Delhi and Noida as well) and Bangalore, which have been stagnating for the past few years, are expected to see a slight increase over the coming months, thanks to a rise in demand.

Liases Foras, a leading real estate research company, says there appears to be a gradual recovery in the market. Pankaj Kapoor, its managing director, says the markets were down after the introduction of Rera and the Goods and Services Tax (GST), and the demonetisation of the Indian rupee; but with the streamlining of these rules the situation has started improving.

Initiatives such as Rera, Reits, Ease of Doing Business, and Housing for All bring in much-needed transparency across the realty value chain, enabling a ripple effect on capital inflows, says Anshuman Magazine, chairman, CBRE

Of course, it’s still a long way off for things to turn out alright. The Mumbai Metropolitan Region (MMR), for instance, had 272,000 unsold homes in the first-half of 2018, about two per cent more than in the second half of 2017. Even a city like Kolkata, far more stable than Mumbai, has unsold stock of more than 61,000; a rise from the previous 50,000 units of sold homes.

According to Anuj Puri, chairman of Anarock Property Consultants, another leading analyst, developers are cash-strapped in Mumbai because of the growing inventory of unsold apartments. And without the funds, they are unable to launch new projects.

“Despite the implementation of game-changing policies like Rera and GST, the issue of stalled or delayed projects that has primarily been at the core of buyers’ discontent is yet to be addressed satisfactorily,” explains Puri.

Indeed, the real estate sector is undergoing a crisis, with developers in seven top cities not being able to deliver more than 575,000 units that they had promised to homebuyers in 2013 or even earlier. The amount that is blocked in these projects adds up to a whopping Rs4.63 trillion, he points out.

The MMR and the NCR are two major regions where maximum units with significantly high values have been delayed since their launch in 2013 or before. “As many as 410,000 units across these two regions are grappling with some deployment issue or the other over the years, resulting in delayed possession,” notes Puri.

The collective value of these highly-delayed units in the MMR and the NCR is a whopping Rs3.6tr. Of course, the stringent penalty clauses under Rera, increasing awareness among homebuyers and a pro-customer judiciary have forced real estate firms to focus on timely project delivery.

But Rera policies have been flouted across many states where several projects that have been ongoing since years and, thanks to the dilutions, do not come under its ambit, adds Puri.

WHILE Rera may not have cleared up the mess in India’s real estate sector, large established players and those with tie-ups with international investors are pushing ahead with changes that promise to transform the sector.

Shobhit Agarwal, managing director and CEO, Anarock Capital, points out that one of the major real estate players in the country, the Bangalore-based Embassy Group (which is backed by Blackstone) will be launching the first Reit and hopes to raise $1 billion in a bid to monetise its rent-yielding commercial properties.

The group, which plans to reshuffle its property portfolio, has more than 30 million square feet of leased office space and an additional 22m sq ft in the pipeline.

Another company that will be listing its Reit is IIFL Holdings. And then of course, there are several international institutional investors who are looking at listing Reits in India.

Agarwal says they include Japan’s NikkoAm StraitsTrading Asia, the North Carolina Fund from the United States, Malaysia’s Hwang Asia Pacific Reits and Infrastructure Fund, Taiwan’s Eastspring Investments and Canada-based Sentry Global.

Reits are investment vehicles, like mutual funds, that own, operate and manage a portfolio of income-generating properties for regular returns, adds Agrawal.

“Reits will provide investors with a safe and diversified portfolio at minimal risk and under professional management, ensuring decent returns on investment,” he notes. 80pc of the assets must be invested in completed projects, and the remaining in under-construction projects, equity shares, money market instruments, cash equivalents, and real estate activities.

Last week, Hardeep Singh Puri, the minister of state (independent charge), housing and urban affairs, described Rera as a remarkable legislation that has changed the basic ground rules of the sector.

According to Anshuman Magazine, chairman of the CBRE, India and Southeast Asia, initiatives such as Rera, Reits, Ease of Doing Business, and Housing for All are bringing in much-needed transparency across the realty value chain, and enabling a ripple effect on capital inflows.

“As one of the largest contributors to India’s GDP growth, real estate today holds the opportunity to change the course of development in the years to come,” he adds.

While India — which toyed with the Reits concept quite some time back — has been slow in adapting to these trusts, they are well developed in countries including Japan, Hong Kong and Singapore.

The minimum amount that an investor — including individuals — can make is Rs200,000, and the minimum offer size is Rs2.5bn. Analysts expect a surge in demand for Reits as an investment tool in India over the coming months, coinciding with the expected rise in property prices and rentals.

Published in Dawn, The Business and Finance Weekly, September 3rd, 2018