• Fri. Dec 9th, 2022

Make the year a good year for real estate investments

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In the late 1800s, economist Henry George observed a very peculiar 18-year cycle that real estate markets seem to be going through. With the exception of a few periods of extreme social unrest such as the hyperinflationary World War II witnessed in the 1970s, this cycle has been remarkably consistent for over 200 years now. According to him, real estate goes through these 4 distinct cycles:


Phase 1-Recovery: Vacancies begin to fall, demand rises, with lower investment costs, businesses expand and therefore employment rises, driving demand for residential housing, less new construction, prices of existing inventory increase. Usually fueled by government intervention in the form of low interest rates.

Phase 2-Expansion: Occupancy is beginning to exceed the long-term average. Rents are rising, more and more investors are starting to arrive because they want a piece of the profit pie. New projects are entering the market.

Phase 3-Hypersupply: Increase in unsold stocks

Phase 4-Recession: The occupancy rate is below the long-term average. Rents and property prices are falling. Vacancies are on the rise.

The pandemic acted as a major upheaval that affected this cycle. But looking at the phases, currently we are in the recovery phase and so 2022 seems like the right time to invest. The year 2021 has been a difficult and turbulent phase for the real estate sector fueled by the pandemic. 2021 has been predicted to be the year with the biggest decline for the real estate sector due to labor migration and apprehensive buyer behavior. However, the real estate sector has shown signs of a healthy recovery supported by strong economic growth despite the devastating second wave.

Looking at the overall performance of the Indian residential real estate market in 2021, there has been a significant recovery. Between January and September 2021, 1.63 lakh new residential units were built in the seven major cities of India; 27% more than in 2020. In addition, commercial real estate has seen massive growth, with office rental transactions reaching 13.5 million square meters in the third quarter of 2021, growing 140% year-on-year .

The residential sector is set to see dramatic expansion, with the central government aiming to build twenty million affordable housing units in metropolitan areas across the country by 2022 under the Ministry of Environment’s Pradhan Mantri Awas Yojana (PMAY) program. Housing and Urban Affairs Union. As we continue to adjust to the new normal, demand for commercial and retail office space is expected to soar as businesses devise expansion plans to bring their employees back into offices, affordable rentals and an increase in vaccinations.

In the previous budget, the government granted TDS relaxation, allowed foreign players to participate in real estate through REITs and InvITs, and recently removed the regulatory hurdle of RBI permits to invest in residential properties and trade by the NRIs. Even the SWAMIH fund has been a great blessing for the sector. This is a government-backed last mile fund to support the completion of stalled middle-income affordable housing projects, reducing the burden on homebuyers who have invested their hard-earned savings.

2021 turned out to be a momentous year for the real estate sector, but would the same momentum be maintained in 2022? Industry stakeholders have a positive outlook as the combined trends of low interest rates, reduced stamp duties, growing demand for larger homes, affordability, and more. continue to transform housing decisions, leading to robust growth in the sector in 2022.

We need to follow government policies to further fuel the recovery phase:

1) Concession to benefit from income tax up to 2 lakh as interest paid on home loans, this limit is to be revised and raised to 5 lakh under Section 24.

2) Reduced GST paid on inputs helping developers retain rental/lease assets, which would then be better offsetting GST on the rent of the completed property.

3) The status of the infrastructure industry must be granted to the real estate sector, so that it can raise funds from financial institutions, i.e. allow the refinancing of the debt of developers, raise capital at a lower rate and attract equity investment.

4) Affordable housing must be defined taking into account the cost of construction and the cost of land, according to the city. For example, in a city like Mumbai, affordable housing is expected to go up to 85 lacs, as land price and construction costs are higher.

5) Extend affordable housing benefits, such as tax refunds beyond 2022.

6) Bring coworking spaces into a 2% TDS slab as in the case of the current 10% services. This will help co-working spaces enormously in managing their cash flow.

The time is right for another upward revision, but the government may not have the cushion to incorporate points 1, 2 and 6. The government should focus on providing incentives to MSMEs and SMEs in trouble after the pandemic, as this will impact the budget deficit, which will ultimately contribute to increasing GDP. With its substantial contribution to the Indian economy and growing positive sentiments, the real estate sector will be a strong pillar in supporting India’s dream of becoming a $5 trillion economy in the coming years.