By: Ravi Sinha
Track2Realty Exclusive: Reeling under compelling economic circumstances that call for financial prudence and tough measures, the first Union Budget of the NDA Government is still reason enough for the real estate sector to exude optimism. It seems the euphoria of a stable government at the Centre is running so deep that despite of the government taking certain tough economic measures before the budget itself and the Reserve Bank of India also not cutting the repo rate down in its recent monetary policy review, the sector is expecting rosy days ahead with the budget being the first catalytic point.
The Union Budget 2014-15 is nevertheless an acid test for the new government and expectations galore with the Indian real estate on the eve of it. It seems the promises of the government on infrastructure and the creation of 100 new cities is something that has made the sector very optimistic about the upcoming budget. A section of the developers are so bullish that they are also pinning their hopes on the new Finance Minster to announce measures like industry status and other policy dispensation available for infrastructure projects to be extended to the realty sector.
Whether the government announces something as drastic as providing single window clearance with pre-defined timelines or reduction in interest rates for home buyers in affordable segment is yet to be seen; but the confidence level of the sector seems to be an all time high.
The expectations galore as far as the budget wish list is concerned. They feel it is the time the government must walk the electoral talk and it must liberalise its FDI policies and relax it to attract more foreign investors. It should cut down the minimum lock-in period to three years and also minimum investment from USD 10 million to USD 5 million. Economists and the financial analysts are in the meantime weighing the options for the Finance Minister as to what is feasible and what is too lofty at this point of time.
Analysts point out the fact that the present government is facing three major challenges- slow economic growth, high inflation and strained fiscal situation. Keeping these in view, the upcoming budget is expected to focus on the approvals of large infra and industrial projects, job creation, reduction of supply side hindrances and containing the current & fiscal deficits. They feel that majority of the decisions that could potentially address these challenges can be taken by the new government in its first budget itself.
Dr Samantak Das, Chief Economist & Director of Research with Knight Frank India believes that at the macro level, this year’s budget should give signals of fast tracking policies that are struck at various levels due to stringent bureaucratic restrictions. Such a move will accelerate the reforms momentum and build confidence among investors to a great extent. He says the NDA government is expected to provide a major boost to the real estate sector in the coming months and this budget would be a testament to the claim. Admitting that real estate is a state subject, he maintains there are certain areas where reforms initiated by the central government can improve market sentiment.
“Demand for real estate is primarily driven by employment generation and urban infrastructure development. Even though an increase in employment generation is a medium term goal, the silver lining resides in the urban infrastructure development that has been the focus of the current government. Over the last five years, a large number of important infrastructure projects have been stalled due to delays in approvals from different ministries of the central government. We expect that implementation of these projects will be fast tracked in the coming months with a strong clarity in the budget with respect to processes and funds,” says Das.
Pradeep Jain, Chairman, Parsvnath Developers says the sector is very optimistic about the upcoming budget and pinning hopes on the new Finance Minster. He asserts that this time the industry is eagerly awaiting the industry status which will ensure that policy dispensation available for infrastructure projects also extends to the realty sector. Single window clearance with pre-defined timelines should be introduced for speedy approvals and bringing transparency into the sector.
“Reduction in interest rates for home buyers in affordable segment through interest subvention should be given to lift the buyer sentiments. It is right time that the sector is given an impetus in the form of policy reforms to help improve the economic scenario of the country. For this, Government of India must liberalise its FDI policies and relax it to attract more foreign investors. It should cut down the minimum lock-in period to three years and also minimum investment from USD 10 million to USD 5 million,” says Jain.
Nishant K. Agarwal, Managing Director, Avighna India also looks forward to the Union Budget 2014-2015 for a change in its status. He says the real estate segment currently contributes approximately 5 per cent of the country’s GDP and is a direct contributor to the success of several other industries such as steel, cement, etc. By providing the sector with industry status, real estate companies would be able to avail of debt at significantly reduced rates, which would encourage development and thereby reduce prices concurrently.
“If the Union Budget 2014-2015 is successfully able to address another key area, there will be a revolutionary change in the way real estate development operates in the future. The implementation of an effective single window clearance is sought to reduce the time taken for developers to obtain approvals. The segment currently operates on the basis of over 50 approvals for any project to begin and this process typically takes nearly 24 months. The opportunity cost involved in this delay is immense and causes a rise in prices for real estate buyers. A single window will hasten the process and will allow for a faster pace of development, quality and most certainly a drop in the prices for consumers,” says Agarwal.
Gaurav Gupta, Managing Director of SG Estates categorically says that the policy makers are not uninformed lot on the causes and concerns of the sector. Expressing optimism for the budget he maintains that if only the Union Budget ahead addresses the long standing demands of the sector, it will give a big boost to the housing and that will catalyse the economy in general as real estate has a number of backward and forward linkages.
“The budget must promote affordable housing with a clear incentive for the developers to launch more affordable housing. This is something we have been demanding for many years now. Then, the Income Tax rebate on home buying must be revised to at least Rs. 2.5 lakhs keeping in mind the prevailing inflation. Also, ease in funding norms to the developers is urgently needed,” says Gupta.
Many within the built environment do suggest that since the real estate is one of the vital contributors to economy’s GDP, Government of India should shift its focus towards this sector and do all the needful to make this sector grow with a CAGR of 20-25 per cent in next 5 years. The Government should address the legitimate concerns of the sector in the budget, and this should be followed through by RBI in terms of easing the repo rates and relaxing other policy instruments such as the CRR, SLR, etc. to inject liquidity into the system.
The sector maintains this is essential if the key sectors of the Indian economy such as manufacturing and real estate are to grow; something that can turnaround the economy of the nation. Now it would be interesting to see how far the government with only a month in office manages to strike a balance between the high expectations of the sector and the compulsions of an economy where the needs may be juxtaposed to the wants. The real estate, in the meantime, expects their ‘Achchhe Din’ (Rosy Days) are just around the budget.
