What are the expectations from the Budget to catalyze both demand and supply in real estate?
The real estate industry in India is a crucial sector that plays a significant role in the country's economy. As the government prepares to announce the new budget, there are high expectations for measures that will catalyze both the demand and supply side of the sector.
On the Demand side, key expectation includes tax incentives for first-time home buyers like increasing the limit for home loan tax deductions and tax incentives for investors with tweaking down of long-term capital gain tax on the sale of the property.
On the Supply-side, key expectations include rendering industry status to Real-Estate which shall enable cheaper credit related to construction finance, more transparent and efficient approval systems with investment in technology by the government arresting unwarranted delay in approvals due to cumbersome manual approval process and reduction in GST on ancillary materials including Steel & Cement as they have been a tailwind to construction cost escalation amidst the supply chain distortion due to geo-political unrest in the east as well as China’s less productivity, etc
The move that can prove beneficial to both Buyer & developer is a revision in the circle rates used to value stamp duty as well as the premium for construction which in many pockets have surpassed the selling rates due to weaker demand side, these circle rates should be revised down to practical values enabling the lower cost of acquisition to the buyer (6% stamp duty & 5% GST effect) as well as lower cost of production to developers related to development premiums.
How can the financing systems be strengthened to provide liquidity to developers?
Since 2016, Real Estate has faced a lot of challenges on the liquidity front with a series of events acting as headwinds to industry growth including Demonetization, Implementation of GST as well as RERA and the recent COVID-19.
However, with a series of aforesaid frameworks implemented, the industry has evolved to be very transparent as well as collateralized for lenders and buyer friendly. However, the cost of capital to developers has perpetually been on the back of limited price rises and escalating costs of production. To address this issue, the financing systems need to be strengthened to provide liquidity to developers.
One way to do this is for the government to increase funding for real estate projects, particularly for the affordable housing segment. This can be done through a dedicated fund for the sector, or by providing low-interest loans and credit guarantees to developers. Additionally, the government can consider providing tax incentives to banks and other financial institutions that fund the real estate sector. These measures will provide a much-needed liquidity injection into the sector and help developers complete their projects.
Another way to strengthen the financing systems is to make it easier for developers to access credit. This can be done by reducing the stringent norms that banks and financial institutions currently have Furthermore, private equity firms, venture capitals, and other Non-Banking Financial companies are providing an alternative source of funding for the developers. The government should look into regulations to facilitate easy investment from these companies in the sector. This will provide developers with more options to raise funds and help to increase the overall liquidity in the sector.
Lastly, the government can look into developing a secondary market for the trade of real-estate debt securities, which would give developers more options to raise funds and provide an additional source of liquidity for the sector. This will allow developers to sell their debt securities to investors, providing them with an additional source of funding and helping to increase liquidity in the sector.
What are the sector’s expectations for enhancing the ease of doing business in India?
As the government considers new policies, the real estate industry has certain expectations for measures that can be taken to enhance the ease of doing business in India. One key expectation is simplifying and streamlining the approvals process for real estate projects, reducing the time and complexity of obtaining approvals and permits, thus speeding up the construction process.
Another expectation is improving land availability and transparency in land pricing and transactions, making it easier for developers to acquire land and commence construction, thus boosting growth and development in the sector. Additionally, the industry is looking for the government to improve infrastructure such as by increasing public transportation and connectivity that will attract more people to live and do business in India and increase the demand for real estate.
One more initiative from the government can be lending a more active role to RERA via the use of an escrow account mechanism for dispute resolution for either party enabling justice on both sides, helping buyers to get timely possession of his/her flat or refund whereas helping developer to unclog non-yielding stuck inventory where buyers are defaulting on payments causing cashflow issues to developer which can inflict construction progress.
Furthermore, simplifying and digitizing the registration and stamp duty process, modernizing it, and linking it to a digital land registry, will help reduce the time and effort involved in registering property transactions, encouraging more transactions and helping the real estate sector.
In summary, the industry has expectations for the government to improve the ease of doing business by streamlining the approvals process, improving land availability and transparency, improving infrastructure, and simplifying the registration and stamp duty process. These measures can help to create a more conducive business environment and encourage investment and growth in the real estate sector.