It has been a long time coming. The real estate sector has been looking for revival after many sluggish years. The sector couldn’t derive fruitful results from the festive season also. Though the sector revival was expected right after the general elections in 2014, it never came through.
There are many things which sector requires at the moment for the revival. Though the government has already given some relief, they have alreadyslashed down the interest rate by 0.25 percent, for example, but still there is lack of end users. The sector is reeling withthe unsold inventories. It is also facing massive trust deficit due to various reasons; one being the operation black ninja by a leading investigative website.
2014 – A Mix Bag Year
The year 2014 started with new hopes but the sector wasn’t able to gain the momentum which was required. After the general elections it was said that the market would get the boost but the spate of new policy measures and announcements over the past few months made by the new government also were not of much help to the market. These policies spelt serious intent of the government about reforms in the real estate sector.
The Union Budget this year augmented hopes and aspirations backed by a strong funding of Rs. 4,000 crores for Affordable Housing. In 2014 the Middle Level housing segment, in the price bracket of Rs. 50 lac to Rs. 1.0 crore did well as compared to the luxury segment, especially in Noida & Greater Noida due to a healthy mix of demand-supply. Again, from the home buyer’s perspective, the extension of tax incentive for housing loans was an attraction for first time home buyers. The decision by the RBI to keep the cash reserve ratio (CRR) unchanged at 4 per cent will help improvement of cash flow in the economy.
Within days of assuming power, the government made a bold vision statement of providing “housing for all” by 2022. Other fairly substantive moves included the provision of Rs. 7,060 crore program for establishing 100 smart cities, the notification of norms for launching REIT funding by SEBI, efforts to bring in more flexible modifications to the Land Acquisition and Rehabilitation and Resettlement Bill and the easing of FDI norms.
2015 – Budget Holds Key of Revival
The common phenomenon with every budget is the hope for the measures which could prove to be beneficial for everyone. The real estate sector is also
hoping for few other remedial measures. The sector being a part of country’s continuous growth process deserves better attention from the government. While commenting on the expectations from the budget, Arvinder Singh, MD, Agrante Realty Ltd, says that market is keen and waiting eagerly for the Union Budget 2015 to be presented in February. “We have a very strong belief that the upcoming budget could be a make or break event as this would be first full budget from the new government which has spent good enough time at the centre to plan outthings. Hopes are high with the Finance Minister indicating start of second-generation reforms going forward.” Concurring with him, Ashok Kumar Verma, CEOInternational Operations, REPL said, “One of the sectors that have been severely impacted by the global economic downturn reflected by sinking oil & gold prices has been the Indian real estate sector. In the past 12 to 18 months, the sector has experienced liquidity crunch coupled with slowdown in demand. The Indian Real Estate sector is looking eagerly towards the expected Economic relaxation in the proposed Budget for the FY 2015 – 2016 to give a breather to the current slowdown in the segment.”
It is expected that the realty sector will grow at a CAGR of 20 per cent over the next five years and would touch $180 billion by 2020. The sector is looking for better policy and budget reforms to facilitate this growth. Incorporation of land and real estate regulatory bill, provision of putting in place single window clearance system, widening of ECB and granting infrastructure status will further boost the sector.
Gaurav Yadav, Director, Uday Homz, a real estate consultancy firm says, “As a sector that contributes significantly to meet one of the basic demands of life, the housing industry has much to ask from the Finance Minister in the upcoming Budget. With a view to keeping housing affordable, competitive and buyer-friendly, the real estate sector hopes that the government will chip in with more incentives at the policy level.”
Sharing his thoughts on the budget, Prithvi Raj Kasana, MD, Morpheus Group says that the government must focus on the process and ensure smooth operation of the budget session this year so as to pass as many bills as possible as the market sentiment will be determined to a large extent by how this session directs the way. He also hoped that the RBI would continue with the reduction of home loan rates so as to provide the required push for the sector.
Echoing the views of Kasana, Verma also expects the reduction in interest rates and says that if nothing else, the reduction in the interest rates would at least improve sentiments of the investors towards the real estate sector. The interest rates preferably should be brought down to single digit. He also said that reduction in CRR will allow flow of more money in the market. He hoped Govt would work closely with the RBI to achieve this objective. Expecting another revival measure, Verma said that steps should be taken towards a fair and justified Land Acquisition Bill. Further, focus should be laid on implementation of single window system for easy and smooth clearances of projects and approvals.
Though Yadav from Uday Homz expects that the government might standardize the rates of taxation levied throughoutthe country uniformly, which currently differs anywhere from 7-12 per cent. This money in turn are transferred to the buyer under various charges like vat, service tax, stamp duty and registration charges. Today, there is sizable difference between the gross price and the net price of an apartment/flat, reason being the additional charges including parking charges, electricity, society, VAT, service etc. such charges burden home buyers and as such should be attempted to be brought down.
With the plan of ‘House to All by 2022’ government has set agenda for affordable housing. Satinder Bhasin, MD, Bhasin Group, also agrees with the affordable housing scheme of the government. He says, “A veryprominent reason why people hesitate in buying a property is due to the affordability. Even after borrowing from the banks, the EMIs due to interest become heavy on the pockets. This budget the new government must have this as primary aim to reduce the burden of the buyers by altering taxation structure. This will greatly benefit the sector and more buyers will come in the market.”
Keeping sync with most of the other developers Kushagr Ansal, Director, Ansal Housing is also expecting for the interest rates to come down. He said, “This time we are expecting the RBI to start cutting the interest rates possibly after the budget in first quarter which shall give them extra confidence on handling inflation expectations and stability in current environment. There is a greater probability of start of rate cut cycle by RBI in the very first quarter this year which will definitely boost a number of sectors and boost corporate earnings from a medium to long term perspective. Moreover, government is expected to pay attention on the implementation of key reforms like GST and other bills that would ignite the investment cycle.”
The sector will also be looking forward for the Infra status to the sector which would go a long way in resolving the issue of funding for projects and reduce the timeline for project completion, thereby helping to cut the overall cost of construction. The Infra status for housing would help make projects more pricecompetitive for the end users and give developers the incentive to push for more sustainable construction, besides taking up affordable housing in a big way.
Singh of Agrante Realty also said that real estate sector will greatly benefit from this budget if loan rates are decreased by RBI. This will create a positive
sentiments wave in the market which will excel the demand greatly. Other important decisions to look into will be the single window clearance system and land acquisition bill.
Similarly, the implementation of the real estate regulatory bill with minor modifications will pave the way for a more attractive and transparent real estate market. Additionally, with developers having to register all projects with the regulatory authority before commencing construction, customers would be able to track the status of every project.
Also, the Real Estate segment is looking at a consideration by the Government to signify the sector as an Industry and announce some special package for development. The Government should prioritize the policy on smart cities and also provide some relaxation to people purchasing houses in Affordable segment, may be in form of waiver on Service Tax. The Purchasing Power Parity (PPP) in India is at a growth and people are just waiting for the right time to invest in the Real Estate sector. Government needs to catalyze this trend.
With the initiatives of new government, there is a positive vibe in the realty sector. These policies include providing greater access to funding on the one
hand and extending liquidity to the end-users on the other, leading to a balance of demand and supply.
The government has also allowed 100 per cent FDI which give a much required boost to infrastructure activities. This will help boost urbanization, especially in tier-2 and tier-3 cities, which have been struggling to develop large projects. Making them smaller and more manageable will attract FDI and expertise in setting up new townships and cities.
To ensure that there is a genuine effort to increase affordability, the government had announced some key reductions in the direct tax rates in the interim budget. The tax benefits for consumers and housing loan borrowers were the main demand from the industry to stimulate the sector. The increase in basic income tax exemption limit from Rs. 2 lakh to Rs 2.5 lakh will help household savings. Additionally, the limit on home loan interest was raised from Rs. 1.5 lakh to Rs. 2 lakh. Increased savings coupled with increased tax benefit will go a long way in motivating home buyers who have been reeling under the pressure of high inflation and high interest rates.
The government has not only tried to boost demand but also supply-side factors, in that, it has clarified on how Real Estate Investment Trust (REIT) investments will be taxed. With this, we are on the threshold of initializing REITs once Sebi gives its nod. Innovations like REITs will open channels for both the commercial and infrastructure sectors. All these measures have led to a rise in general confidence among investors, developers and end users. It will create a better environment for growth of real estate sector, backed by a strong economy and consumer/enduser confidence.