Easing FDI norms will get realty more funding

Font Size

Print

Feedback

Email

Discuss

Related Articles

Budget addressed stimulus needs: MontekIndian budget brings ‘hope and change’: HindujasRealty sector unhappy with BudgetLife saving drugs, LCD TV cheaper

: The real estate sector has seen a meteoric rise in investment into the sector in the past three years (see chart).

While the overall Indian economy has largely withstood the global economic slowdown with growth rates continuing to remain positive, the real estate sector has been severely impacted. For instance, Operating revenues of major real estate listed firms have shown a decline of 25%-60% for the year ended Mar 31, 2009, as compared to the previous year.

Of the three essentials—food, clothing and shelter—this sector is most in need of support. Lack of liquidity arising out of drying up of the private equity/IPO market, limited support from local financial institutions and a steep fall in demand; softening in property valuations etc, have all contributed in creating an unenviable environment for players in this sector.

The government has stepped in to assuage the liquidity crunch through various measures such as rate-cuts, reducing risk weightage and provisioning requirements, re-financing facility to NHB and categorising the up to 20 lakh home loans under priority sector. However, the sector needs further support in the following regulatory and tax areas:

Collective investment in the industry has been on the growth path except in the recent past. Re-introduction of the tax pass-through status for Domestic Venture Capital Funds, as well as a reconsideration of the clampdown on investments in this sector by Foreign Venture Capital Investors would be a much needed sweetener. Further, a relaxation of the conditions for FDI under Press Note 2 would result in making the Indian real estate investments more attractive and competitive for foreign investors, given that there are overseas distressed assets competing for capital as well.

The introduction of the Real Estate Mutual Funds was aimed towards creating liquidity and bringing in institutionalisation, but this vehicle has yet to gain momentum. In the current economic scenario, it would be useful to consider granting further benefits to such funds in the form of stamp duty and income-tax benefits to provide a startup fillip and make them attractive for investors.

By and large, overseas debt is permitted to be accessed by real estate players primarily in the form of compulsorily convertible instruments and for integrated township. Granting access under the ECB scheme would give developers access to funds at international interest rates, as well as provide investors with a relatively higher degree of security and comfort.