Undergoing stress on various accounts, the real estate sector had pinned its hopes on the Budget 2015-16. While the industry expected that incentives to buyers for buying new homes would infuse demand in the market, it also felt that the move would lift the development activity and thus provide the much needed recovery impetus to the sector.
However, as those were left unaddressed by the government in its Budget announcements last month, industry insiders now feel that the recovery process of the sector may get deferred by some more time because of this. They feel that the government needs to address issues of long-term funding, creation of new supply and speedy clearances of projects across states in order to achieve its objective of ‘Housing for All’ by 2022.
“It is true that by not addressing the problems being faced by the industry, the recovery process of the sector has been delayed by some time. However, the government is in dialogues to check what can be done to address the issues and we are hopeful that some solution will emerge,” said Anshuman Magazine, chairman & MD, CBRE South Asia.
Even though before the General Elections in 2014 there were expectations that the sector would witness a take-off after the formation of a strong and stable government at the Centre, not much has changed since then. On the other hand industry players feel that the activity has actually gone down.
While new projects continue to face slowdown, lesser number of launches mean less activity in the sector and lower number of jobs created in a way also impacts the economy. So the supply side activity needs to pick up for the overall growth of the sector and the economy.
Issues ahead for the industry
Experts say that the government’s ‘Housing for All’ plan can’t be achieved unless the Central and state governments take steps to facilitate development of new projects. While interest rate cut is considered to be a big factor in propping up demand within the sector, Reserve Bank of India’s decision to cut the repo rate (at which the RBI lends to the commercial banks) by 50 basis points over the last two months has not yielded any result because very few banks decided to pass on the benefits to their consumers.
In the absence of that, experts feel that as a means to directly incentivise home buying, the government can provide additional tax benefit on purchasing houses in order to stimulate the demand to some extent. Funding is another critical area that many feel, needs to be addressed. “The government needs to provide infrastructure status to the housing sector and long-term funding needs to come at a lower rate. That can stimulate the sector,” said Magazine.
Developers say that funding is a major issue for their projects. Mohit Goel, CEO of Omaxe, who is in the process of consolidating his business and is looking to dispose of some of the land that his company owns in states from where he plans to move out, said that the interest rates the banks charge are on the higher side. “Banks lend at least 16 per
cent to the real estate developers and on top of it we are asked to provide double the amount of security,” said Goel.
He further added that while slowdown can be seen in the luxury and the high-end residential segment, there is no dearth of demand in the affordable segment and the government needs to ease both funding and lending for the affordable housing segment and that will also help in achieving its objective of providing housing to all by 2022.
“A large number of new jobs have been created in Gurgaon and Pune over the last one year and these people are looking to buy homes. But the demand will come for houses priced around Rs 30 lakh to 50 lakh and not for those priced at Rs 3 crore to Rs 4 crore. We see future in the affordable segment. Even though the margins would be low, we hope that the volumes would make up for it,” said Goel, adding that the industry, instead of growing, has gone down over the last one year and needs government’s attention on various accounts.
Another area that the sector wants the government to address is on providing quick clearances for their projects to be developed across the country as housing needs across India will have to be addressed and the states will play a critical role.
“The Centre has to see how it can fast-track the approval process as it should be a part of the government’s ‘Ease of Doing Business’ initiative. States will have to be roped in for both acquisition of land and project clearances,” said Magazine, adding that raising the supply is an important step towards bringing the prices down.