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INDIA (DOMESTIC FIRMS): An Introduction to India

Real Estate Outlook 2020 

by Dhaval Vussonji, Prachi Dave, Minal Sampat and Manisha Paranjape of Dhaval Vussonji and Associates


As we move towards 2020, we look at interesting times with all constituents having witnessed fundamental changes in the manner in which real estate has been purchased, financed and sold. ‘Last mile funding’ is going to be the buzz word. Quite contrary to the belief of doomsayers, 2020 will be a year of deliveries and resolutions and the Government has set the stage for it.

As a background to what has happened in the last couple of years, first came the demonetisation policy, which saw individual investors exiting the real estate space resulting in a build-up of unsold inventory. Next came GST and its amendments, which saw developers and investors scurrying around to save taxes in an already declining market. The simultaneous introduction of the Real Estate Regulation Act forced investors, developers and bankers alike to rethink the manner of lending and investing in such projects as cross collateralisation and funding of projects came to a standstill almost immediately. This was followed quickly by the introduction of the Insolvency and Bankruptcy Code, which saw home buyers getting a new found right to take developers to insolvency courts to get what seems to be retribution at best.

The recent stress in the underlying assets has resulted in lenders facing stressful positions as well. A number of large lenders including those lending to homebuyers have not been able to fulfil their commitments and/or are unable to lend for construction projects.

All this has led to huge build-up of incomplete inventory and the focus in the coming year will be on transactions looking at completing these incomplete projects – last mile funding.


The new financers in the present market conditions are expected to be the Government itself, banks, ultimate users picking up assets at retail level or large funds looking to lease and corporates looking at forward purchase deals.

The Finance Minister has recently set up a $3.5 billion fund to allow completion of stalled affordable housing projects providing a big relief to developers and consumers alike. The futility of an IBC proceeding in a stressed market like the present one has been well recognised by constituents and government agencies alike. The Finance Ministry has set the stage for a slew of unique solutions that are expected to solve what seems to be an ever expanding problem of non-moving inventory.

The advent of co-working spaces, the quality of those assets and the pricing of their services will spell a new era of the manner in which commercial inventory will be looked upon by consumers and investors. Even the new class of fund managers managing buildings with strata leasing are looking at providing consumers with an experience which is better than a simple office or commercial building.

The present market will give rise to a new set of professionals who as lenders, investors, architects or liaisoning consultants or development managers will ensure that compliances are given top priority.

In this background, it is finance which will dictate the manner in which the real estate space will move. It is finance which will also dictate what inventory will get constructed, how it will be done and who will do it. Primarily our view is that the next year will focus resources towards completion of existing inventory and potential avenues of exit to investors and lenders of stalled projects. There will of course be value-buys in the commercial space which remains an area for interest for foreign funds interested in owning prime inventory. Also, this kind of very specific financing will give rise to a new breed of development managers who will professionally run a project belonging to a developer and will give comfort to the financers.

The Real Last Mile Funders 

Financing in real estate projects for consumers and developers alike will continue to be a challenge as lenders become more sceptical towards funding of under construction projects especially in areas where there is an oversupply of inventory. Lenders providing this last level of funding will now dictate the manner in which all existing stakeholders including holders of mortgages will survive. Also, these lenders are expected to ask for absolute rights over such assets.

We expect such financing to be slow and restricted to projects which are expected to perform. External factors such as location, potential supply and demand will all be the determining factors for these projects, which will be completed not by present developers but by persons who are viewed by these financers as best candidates to complete the project. We also will see a lot of reversal of insolvency cases where new lenders are still willing to bet on existing developers for delivery of stalled projects.

We expect a major part of this funding to be done by banks and finance companies which are set up by such banks. The present non-banking financial companies are expected to restrict themselves to funding of projects where they have already put in funds in order to enable smooth completion of those projects, enabling recovery of their loans. The rising non-performing assets on their books will now tide over in spite of initial provisions to comply with law. The end of 2020 will see a marked improvement in the books of those lenders.

We also expect lenders to tie up with real estate funds in order to provide last mile funding for deserving projects, which have been unable to progress only due to lack of funds.

We also expect lenders to foreclose their mortgages and take custody or charge or ownership of underlying assets where they are unable to see buyers and the underlying assets can be effectively dealt with in their system. In doing so, lenders are expected to convert existing exposures to underlying real estate where such real estate can be profitably deployed by them creating a win win situation for all.

Lenders are also expected to be bold in trying to achieve solutions for such stalled real estate projects. This will include lenders enforcing their rights even against land owners and housing societies who have allowed their lands to be mortgaged through developers, who have been unable to complete their projects. Of course, we expect that the land owners and housing societies will get their due entitlement from the agreed terms of development but will not be in a position to renegotiate those terms. The lenders will want to identify and fund professional development managers who they are comfortable with and who complete those projects. Such land owners and housing societies may be well advised to toe the line with those lenders who are willing to provide funds so that they have a roof over their heads or delivery of their intended investments within reasonable time.

Value Buyers of the Entire Projects 

Funds and cash rich corporates will buy out completed or under construction buildings as a whole based on their investment philosophy. We expect to see an actively involved set of professional fund managers, who will involve themselves in under construction projects and management of completed inventory.

It is likely that all these projects will be known by the professional development managers or maintenance companies and other professionals involved in their execution rather than one particular developer that we are traditionally used to seeing.

As the last mile funders, these purchasers will dictate how sellers and existing lenders will be paid and will earn their pound of flesh. Existing lenders and investors of such projects may have to take a haircut on their investments but will see the end of the tunnel. Developers interested in seeing sales through may have to provide support towards approvals and construction in order to seal the deal.

New Land Buys 

Land transactions in new locations will be few and far between except for value buys of stressed assets. The present owners will toe the line of their lenders, who have the option of dragging them through the insolvency process or in Courts if their demands are not met. This being said, the full effect of an insolvency proceeding has now been understood by one and all and present land owners will respect the position of lenders.

Strata Purchasers 

The measures being taken by the Government will hopefully see the economy expand next year. A corresponding demand growth from the ultimate consumers will help the sector tide over the difficulties it has faced in the past years.

In the commercial space, strata purchasers may be few as co-working spaces and professionally run leased buildings may provide a better experience for businesses. The completion of the Maker Maxity complex in BKC, Mumbai will set the stage of many more such developments consisting of offices, malls, retail spaces, hotels, restaurants and conveniences in a single layout.

My recent experience with living in leased premises and serviced apartments have led me to believe that millennials may prefer to stay in well maintained apartments in different locations of their choice in the city, based on convenience. Ownership of property attached to residences may not be an important driver for such demand in the years to come. It remains to be seen if 2020 will also set the stage for development of such serviced apartments, which deliver more than just four walls.

Litigation and Government Intervention 

As the country becomes conscious on its responsibilities to the environment, encroachment on green spaces will be a contentious issue between those favouring development and those protecting the ‘lungs’. The Government and Courts alike will need to strike a balance between the two in order to ensure sustainable growth.

A stay on new constructions in cities such as Bengaluru and Delhi in order to curb pollution is likely to keep those markets under pressure with solutions today seeming far fetched. Stalling of large infrastructure projects like the coastal road in Mumbai will continue to affect corresponding projects planned around them. We expect it to be a while before an acceptable balance is achieved.

Also, lessees of preleased areas will enter into negotiations with their landlords for more realistic pricing and absent an agreement we expect to see a rise in disputes.


2020 will be a year of hope, unique ideas, solutions and an unwinding of pressure that has built up in the last so many years. It will set the stage for a more professional attitude towards the sector, creation of projects which will stand out to attract demand in a difficult market place and an acid test for those who are cut out to be a part of the Indian real estate space.