Budget after budget the industry voices across the built environment of the Indian real estate echo the causes & concerns of the supply side – builders. On the eve of the Union Budget 2021-22, it is imperative to address the issues that affect the demand side – buyers. Failing to address the buyers issues, would be detrimental to the revival of the sector which, in turn, is critically linked to the revival of the economy at large.
The biggest anomaly with the Indian housing market is that the housing demography thus far has been confined to the top 10 major cities. The buyer demography is limited to these top 10 cities and top 10% of the overall demography in terms of its earning & spending capabilities.
Indian real estate is not the only exception. Across many other sectors the voices of the buyers are often ignored when it comes to the budget deliberations in the Finance Ministry corridors. However, this sector is different from any other industry for reasons more than one. First, unlike other industries where the buyer goes out to buy a product, in real estate the buyer more often than not buys out a promise and pays at a time when the product is not even ready.
Secondly, no other product is bought with such an over-leveraged budget on part of the buyers. A house is the only asset class that is bought with large share of the capital being borrowed. Any payment default on part of the buyers is hence detrimental to the fortunes of the business.
Some analysts believe that the home buyers are not a homogenous set of people and hence it is not easy to address their demands across the board. With real estate construction lifecycle as long as 5-7 years, the buyers at each and every stage of the project have their own different set of demands.
Track2Realty has broadly classified the buyers into three segments to assess their budget demands: Prospective home buyers in the top 10 cities; home buyers already bought; and the prospective buyers beyond the top 10 cities.
Buyers in the top 10 cities: This set of home buyers is the major demand driver and a key catalyst to the fortunes of the Indian real estate. Their overall share in the demography might be just 10%, but in terms of the earning & spending capabilities they are the drivers of the economy. Their budget demands are:
Interest exemption up to INR 5 lakhs
GST Waiver on the under construction properties
Circle rate difference up to 30-35%
Already bought buyers: This set of buyers has already bought the house; some have even got the possession. They are nevertheless no less critical for the fortunes of the Indian real estate. In today’s Covid-hit economy where many of them have been reeling under the job losses and the salary cut, any payment default or distress sale would play havoc and spoil the entire real estate market. Their demands are hence:
Conditional loan deferment
Loan restructuring
Capping of Capital Gain Tax to 10%
Beyond the net buyers: They have never been factored into the TAM (Total Addressable Market) and hence all statistics of the demand & supply dynamics have always been loaded in favour of the top 10% of the demographic profile. However, if the Indian housing market has to grow beyond the selected cities, then buyers across the Tier-II and Tier-III cities need to be tapped. Even demography of the top 10 cities need to factor in buyers at the middle, if not bottom, of the earning pyramid. Their budget demands are:
Affordable housing stock
Low cost housing
Rental housing
Social housing
Credit flow
Last, but not the least, it is imperative to see within the given constraints of fiscal responsibility and budget management targets, what all would be possible for the Union Finance Minister to dole out. I believe that instead of the usual budget rhetoric and customary big bang announcement, the time has come for the Government to be serious with its own earlier announcements and roll out policy road map for the same. In order to revive the real estate sector, the Government must incentivize home buying and give an overall demand push to the economy.
Job creation must be at the top priority of the Government with the budget. The already announced infrastructure spending of INR 111 lakh crore by 2024-25 has not even spent 25% of the said budgetary allocation since the last budget. The already announced, and some at different level of execution, 7,300 infrastructure projects have the potential to transform the economy; give a demand push and create jobs across the states; leading to real estate demand creation across the Tier-II and Tier-III cities.
The Centre’s announcement to set up a Development Finance Institution (DFI) to fund infrastructure projects has to be rolled out, with Public Private Participation encouraged for the same. Last, but not the least, the Government must walk the talk and act beyond the headline management.
Ravi Sinha
@ravitrack2media
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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