The various developments in the real estate market in the second half of 2014 have made an optimistic focus for the real estate sector starting with this year. The Indian economy has also been showing positive signs with the start of 2015. A gradual improvement has been witnessed both in domestic and foreign markets regarding institutional investment. The fundamentals are also in place for the global economy to move ahead.
Tax Limit and Incentives
Income tax limits and home loan incentives will boost the sector to drive the demand in the residential real estate. The budget will act only as a catalyst in achieving the same where the end users and long term investors are going to be benefitted.
We are expecting the budget to offer directions for obtaining cheaper funds for both developers and home buyers. If the interest rates for home loans decrease, then more people will be able to buy the house they want. Also, if the cost of funds for a developer is cheaper, the cost of houses might reduce, which in turn will lead to more housing sales, which has been on a slump in the last quarter of 2014.
RBI Rate Cut
With banks becoming tighter on lending, the timelines of deliveries have taken a hit. The RBI rate cut announced in mid January didn’t quite move positively with the commercial banks. There was hardly any discernible interest rate decrease by banks and now the 50 bps SLR cut may not give impetus to the demand for housing. It is time that RBI goes assertive with rate cuts and impress upon banks to reduce lending rate in equal measures. As a result, the buyers will be incentivized through rebate in individual income tax as well.
Besides, the cash-starved sector needs a fresh momentum in housing. A top priority has to be accorded for bringing in FDI in India. This FDI proposition is not just about bringing in the dollars and helping the sector revive, apart from money, the larger focus would be a holistic one wherein we bring here global expertise and upgrade in operational strengths. India is still far behind in infrastructural development and it needs large investments to help bridge the infra gap. The Union Budget should make more provisions to increase foreign investors’ participation in this sector.
Affordable housing is another area where a lot has to be done. In the previous nine month budget, the new government defined its vision for boosting affordable housing. So in the upcoming budget, recommendations of a task force have to come into being. If the Land Acquisition Act 2013 is passed, one can hope that there will be incentives for the low cost housing spaces. The government should also offer tax rebates on housing purchases and mortgages. This will definitely push the affordable housing at a large scale and will bring a sigh of relief to the developers as well as buyers.
Infrastructural development has been at the forefront of the new government’s agenda and we hope it brings about positive reinforcements. India lacks on the technical and financial strengths which calls for a global support system which can stimulate those on ground. Be it architects, contractors, material suppliers and most vital being the project management diaspora. The development of the allied sectors is a necessity for the real estate sector to flourish.
Approval and Clearance
Quicker approvals are the need of the hour. Due to complications of government channels, many projects get halted and delivery is delayed resulting in cost escalation. A rapid completion of stalled projects is essential. The single window clearance is a long pending issue. The current approval process takes a really long time for approval.
Clearer and uniform policies should be introduced by the government. Frequent change in policies and regulations affect the approval as well as construction process. The execution of policies should be faster. Policies should be loop holes-free and transparent. More skilled workforce should be inducted in the entire administrative and civil set up and make the entire system accountable by fixing responsibilities.
We are also looking forward in making Indian real estate more investment friendly and attractive for overseas investment funds by introducing a revised tax code for REITs to take off, approving and implementing of pending Real Estate Regulatory Bill (RERA), to establish transparency and fairness in this sector, Relaxing Counter-Productive Clauses in LARR(Land Acquisition , Rehabilitation and Resettlement) Act to counter land-related bureaucracy and encourage “green” sustainable Real Estate by providing combination of incentives.
The latter half of 2014 was all about bringing in reforms on paper for the real estate market. The empirical reforms are to be looked forward for in this year. And the initiation has already begun. The pace is soon to increase. One needs to focus on the negatives too like despite the recent RBI’s call for rate cuts, there have been no substantial new developments on the disinflationary process or on the fiscal outlook since January 2015. There has been only a modest effect on the Indian banks. Real Estate developers are hopeful things will take a positive turn after the Union Budget 2015-’16.
Kashi Nath Shukla
The author is the Chairman and Managing Director, Tashee Group, one of the most preferred real estate brands spread across high-end commercial complexes, residential developments, retail spaces, office, Mega Township etc since its inception in 2004 headquarter in Delhi. Over the last 10 years, the group has a business interest in Real Estate, Entertainment Industry, Hospitality, Care Home as an executer of some real estate projects and producer of several upcoming tele-serials respectively in India.