By: Ravi Sinha
Track2Realty Exclusive: On the eve of Union Budget every year the Indian real estate sector seems to be fighting a losing battle with the government. For long the policy advocacy of the sector has amounted to confrontation with the policy makers where the sector proposes and the Finance Minister disposes.
Some of the demands sound to be so overtly rhetoric that it seems the sector has lived in a copy & paste mode in the last few years and only thing that constantly changes with the list of budget demands is the date line year after the year. However, on the eve of the Union Budget 2015-16 it seem there is a visible change in the perception of the developers and the government.
Both the policy makers and the developers seem to be gradually coming on the same page as far as the legitimate causes and concerns of the sector are concerned. They understand the constrains of the other side as well and hence the Union Budget this time around might see the new beginning for the sector. The developers are in the meantime not overtly critical and though they have a long budget wish list this time too, they are also conscious of the fact that they have to go a long way with the government and hence there is a need to bridge the trust deficit.
This realisation is both ways and promises to see some gains for the sector in the Union Budget 2015-16. The Union Budget for 2015-16 will be Finance Minister Arun Jaitley’s maiden Full Year Budget of the new BJP-led government. The industry observers maintain since the government came to power on promises of providing relief to inflation-hit common man, amid falling growth, stagnating investments, high fiscal deficit and external crisis, there are reasons to believe the government will fuel the wheel of growth where real estate is an important segment.
Manoj Paliwal, CFO, Omkar Realtors & Developers is expecting the budget to be rational which will remove the anomalies of the tax system that are beyond normal businesses. On the other hand, he is also advising the government to recognize that India is a growing economy and does not need to follow the high tax regime practised by other global economies. He asserts that the current government seems to be serious about growth. Any positive changes in tax laws need to be duly supported by other regulators.
“One can expect a whole set of second generation reforms to be unveiled in the next Union Budget. A need for stability of policy and tax regime besides a reasonable cost of capital is a must. We have to understand one thing that the change is not going to come overnight. The work towards making the buyer sentiment positive has started and we shall see that happen for sure. Today, customer is king and has increased choices. In spite of huge regulatory hurdles the sector is becoming more competitive. Developers need to work and plan as per prevailing business scenarios, says Paliwal.
Abhay Kumar, CMD of Grih Pravesh Buildteck says budget expectations are many – interest rate has to reduce, employment has to increase, implementation of 7th pay commission is much needed, good and multiple connectivity of cities is required, single window clearance system has to be granted for businesses, corruption must be curbed, GST has to be implemented and stalled large infra projects have to restart.
“This budget is certainly going to be different because government coffers too are at impressive level which could support lots of social and infra projects. Fiscal deficit and inflation is in control which would further help government in budgeting such sectors which was ignored for quite some time. In a nutshell, this budget could be closer to reality than making just aspirational announcements,” says Abhay.
Arvind Nandan, Executive Director of Housing.com sums up the budget sentiments of the sector vis-à-vis their expectations when he says that the sector is patient with the government with confidence that the intent and direction of the government is pro-sector. He believes the turnaround of the fortunes of the sector will be visible post the Union Budget as this will be the first ‘Full Budget’ of the Government; something that shows forward a clearly defined roadmap.
“The good part is that the government is conscious of the needs of the real estate sector and its co-relation with the revival of the economy at large. So, I get this feeling that the budget which otherwise is more of a vision statement of the government will have something more this time in terms of the specifics and defining of the roadmap ahead. Of course, the focus on infrastructure development itself will solve many problems” says Nandan.
This raises a fundamental question as to whether the sector thus far had unrealistic expectations with the budget. Developers deny this saying it never had any unrealistic expectations but there is less demand today because of the emerging understanding between the sector and the policy makers. A general expectation from this sector has always been for ‘Good Governance’. Real estate is one of the few sectors which are still under old ‘License Raj’. Many sectors like Banking & Financial Services, Telecom and Manufacturing have relatively good government support and are witness to the growth due to good governance. After a radical improvement in regulatory environment, real estate sector will attract huge amount of capital and resources, which will bring down the cost and making living affordable to all.
Analysts point out that even though some sops are very much expected with the budget ahead, just budget can not turnaround the situation; now the time has come to convert words into action. Touching emotional chord and creating hype would not be sufficient any more for keeping the business confidence index high. Budget should follow the implementation quickly to see the real change in otherwise dim situation. Sudden turnaround does not look feasible but there would be some real & firm growth in different sectors and development at macro-economic level. This could be a dream budget where the government can fulfill those dreams due to its strength and desire to do so.
The realty sector is seeing reality after a very long dream run. People now understand that 40-50% CAGR is no more possible in real estate sector. This government came into power with sky high expectations of people and situation was such that the sudden change of sentiments led to Sensex touching fifty thousand in one year. But then expectations also led to hope that Mumbai would become Sanghai in two years, India becoming power surplus country in five years and so on. Now even people are hit with harsh realities that things do not change overnight and it takes time to see the gradual improvement.
Currently people are recovering from aftershocks from their own expectation created by the over hype in the General Election. And hence, coming out of that election hang over this budget will be a litmus test for government to show some real changes at macro level. To regain the confidence in real estate the government must win the confidence of home buyers first and for that low interest rate, low inflation and encouraging buyers through tax incentives are much needed. Moreover, additional land parcels should be made available to curb the ever rising land cost thereby making affordable housing and housing for all a reality. Union Budget 2015-16 is hence expected to answer long list of queries, even though there is patience on part of the sector with an overt ‘long way to go’ posturing.
