How Will The Elections Affect Real Estate In 2019?
Elections do not make or break a market, but can certainly affect the economy to a great extent. From liquidity crisis to softening of property prices, elections have known to impact real estate sector in the past. Since two decades every pre-election year there has been a decline in investments in the real estate sector. With the new tax system (GST) and legal regime the non-banking financial sector is undergoing a liquidity crunch for the real estate industry as the Banks have stagnated the lending to the real estate sector.
Nonetheless, in spite of the liquidity crisis behind us, the path for the real estate sector seems to be unpromising and one of the reason is the ambiguity around the elections. In the current market, commercial real estate – especially Grade A office properties – is definitely the best-performing real estate asset class. Thanks to the incumbent government’s proactive initiatives such as Make in India and the thriving start-up culture in the country, demand and absorption for well-located office properties has been booming.
The commercial real estate sector has been hit severely because of the upcoming elections the banks have declined their support to the toxic assets in this sector. The impact of the uncertain policies of the political cycle in the real estate sector has been observed in many countries.
The real estate activities take a hit pre-elections as the construction companies divert their funds towards political campaigns to meet the financing issues and to complete ongoing projects, the developers are expected to give heavy discounts on the products to increase the sale. Current time is definitely favorable for home buyers who can enjoy heavy discounts as most of the prospective home buyers usually tend to go for a wait-and-watch approach in the hope that the new government might announce new schemes and policies.
A full-fledged recovery in the residential space is at least 12-18 months away, given the recent liquidity crisis and slower-than-expected sales recovery. New construction projects have dropped sharply with many under-construction projects getting stalled due to funding issues.
While the growth in the housing sector has been majorly stagnant the growth in the commercial real estate sector has been falling since the last decade. The decline in the sector has led to an overdue correction in property prices, with the hindrance in growth of the property prices in the country at a time when property prices are growing in advanced economies. There has been a decline in job creation as well, since Real estate sector is one of the biggest job creating sector.
With the increasing cost of finance and declining returns, India’s real estate sector’s recovery is a long way. This means that property prices could get better in the future. While this may be good news for potential home-buyers, but not for those who have invested in real estate in the hope of earning high returns.
But it’s not all gloom & doom. You can still have your share of indulgence as commercial real estate promises exciting returns, going forward.