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Fast growing real estate has become the face of major Indian cities like Mumbai, Delhi-NCR, Bangalore, Chennai, etc. and increasing urbanisation paves a way for healthy demand for the sector in the future. However, real estate has suffered from a dip in demand and sluggish sales in the recent past and as the new budget is about to announced, there are myriad speculations and expectations for the sector.
The role of realty is considered significant in India’s economy. Urbanisation is rapidly growing in India and demand for real estate spans form the housing sector to office space, malls and factory spaces as well. Along with considerable contribution to gross domestic product (GDP), realty also helps to improve infrastructure in India. Moreover, investment in real estate sector pertains to investment form both domestic and foreign sources.
Real estate contributed 10.6% to India’s (GDP) in 2010-11. The dismal performance of the sector becomes evident form the fact that its share of contribution came down to 6.5% in the year 2012. High input cost and fall in demand, along with high financing costs fueled by the weakening economy has hurt the real estate sector in the past 12 months.
After riding on high demand and escalating property prices, Indian property market went through correction in 2011. The sales dropped across the nation in 2012 due to weak domestic as well as global economy and sluggish demand. New launches have dropped in cities like Delhi-NCR and Mumbai by an average of 30% in 2012 and about 44% of the housing units have remained unsold.
On the backdrop of poor performance of the real estate sector, certain economic measures have been either proposed or taken to boost the realty. Reserve Bank of India (RBI) has agreed to slash its key policy rates and cut the cash reserve ratio (CRR). Home loan rates have been reduced by the leading banks and there is a possibility that the rates will further be reduced in 2013. Purchasing power of an average Indian has taken a hit and the reduced interest on bank loans is expected to boost the demand for housing projects in India.
Government has taken up other incentives like relaxing external commercial borrowing norms, capping subsidies as a fraction of the GDP, modified manufacturing and telecom policies, etc to attract investment from foreign sources. The allowance of Foreign Direct Investment ( FDI) in retail sector and aviation industry is also expected to boost the scope of developers to play a major role for infrastructure; aided by the foreign funds.
Realty players are rooting for an industry status for real estate in India for sometime now. Developers associations like Confederation of Real Estate Developers Association of India (CREDAI) and Federation of Indian Chambers of Commerce and Industry (FICCI) would be hoping that their cries be heard in the upcoming budget.
Industry status would make it easier for the real estate developers to avail finance from banks easily. It will imply that loans to the sector will not be given a higher risk weightage and interest rates will also come down to a lower and competitive level. Infrastructure status to development of integrated townships has also been urged upon by the realty stakeholders.
There is a huge gap between demand and supply of affordable housing units. Between the period of 2008 and 2011, demand for affordable homes in the range of Rs 10-20 lakh stood at 17 lakh in cities like Mumbai, Delhi-NCR, Bangalore and Chennai. However, only 85,000 units were launched in the period which tells the tale of huge unmet demand. Industry will expect tax concessions on building materials, technology and services so that construction cost comes down and also granting of income tax benefits to buyers of affordable units to ensure speedy absorption of these units. The custom duty on imported construction materials like aluminum form-work or precast technology is expected to be reduced by the government so that construction cost comes down.
The Land Acquisition Bill could not be passed due to many contentious clauses in 2012. 155 amendments have already been made in the bill draft and it is supposed to be discussed during the budget session. While the developers have been raising objections to the bill, farmers and social activists have been campaigning for changes as well. The Bill if approved this year, is set to impact real estate in a big way.
The need of the hour is to improve the regulatory framework for approvals through a single window clearance system. The proposed real estate Regulatory Bill could work in favour of a single window system and could bring about a speedy approval for real estate projects. Currently, the approval process is a lengthy one, which affects the time line and schedule of the project.
Image courtesy of Stuart Miles at FreeDigitalPhotos.net
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