Change is hard at first, messy in the middle and gorgeous in the end, writes <span style="font-weight: bold;">VIKAS KHEMANI.</span> <p></p> <p> It is said that change is the only constant. This could not be more apt than in the context of the real-estate sector. The recent times have seen a paradigm shift or 'winds of change' - from fragmentation to structure and transparency. This has been aided by initiatives such as demonetisation, GST and the proposed RERA, all of which collectively signal a migration from the unorganised to the organised sector in a big way. </p> <p> <span style="font-weight: bold;">A win for organised players </span><br /> Traditionally, real estate is one of the sectors under which unorganised sub-industries thrived, from building materials to construction and even labour. With the advent of GST, there will be a major thrust to the organised players, as developers would be keen to avail input credit from raw material suppliers, resulting in a stronger bias towards the organised players.</p> <p> Another landmark change in the industry has been the introduction of RERA, which will lead to an increase in transparency and streamlining of many issues of pricing and timely completion of projects. Over a period of time, this will lead to consolidation and players with deeper pockets will survive, with the smaller players merging or tying up with large developers and co-developing assets in the short and medium term. In the longer term, however, it is the ability and the willingness of these smaller players to adapt to an organised set up that will determine their sustenance.</p> <p> <span style="font-weight: bold;">Growth drivers</span><br /> The growth drivers for residential real estate are mainly urbanisation, with rising income levels and increasing nuclearisation. An estimated 10-12 million people migrate to urban areas annually; going ahead, this number will steadily rise. The vast gap in affordability and pricing of housing for the marginalised sections of society has led to increased government impetus for affordable housing and 'Housing for All' by 2022. This is also a key demand driver for this segment. Recently, the International Finance Corporation invested $200 million in India's leading housing finance companies to provide loans for affordable housing. Easy and dedicated access to institutional financing and increasing the limit of external commercial borrowings will attract more investments such as these, and assure the sustained growth of affordable housing in India by lowering cost of construction. </p> <p>The benefits will eventually be passed on to the end-users, making affordable housing the core driving segment for real estate.</p> <p>In a further boost to this sector, SEBI has approved Real Estate Investment Trusts (REITs) to list on Indian exchanges. This again aids in improving market transparency, smoothening the volatility of property cycles, and effectively lowering cost of capital for developers. At the same time, the hybrid nature of the instrument ensures that investors avail the twin benefits of yield and capital appreciation while providing smaller investors an opportunity to invest in large-scale, real-estate projects. </p> <p>Indeed, the sector faces myriad tailwinds ranging from institutional interest to more liquid investment instruments as well as a focus from the government that bode well for it. The headwinds it faces are to the extent that the fringe players need to professionalise their set-ups, get in management teams to set up robust processes as they streamline themselves in their transition to an organised set-up to gain multifold from the realisation of the India growth story - or face the risk of obsolescence. </p> <p> <span style="font-weight: bold;">About the author: <br /> Vikas Khemani, CEO, Edelweiss Securities</span>, has over 20 years of experience in capital markets and investment banking. He has been instrumental in setting up, building and scaling up several businesses at Edelweiss. He is also a member of the Edelweiss Management Committee.</p>