‘7th Pay Commission hike to push up demand in housing sector’

By: | Updated: June 29, 2016 5:51 PM

The recommended 16 per cent rise in basic salary and the 138.7 per cent increase in house rent allowance (HRA) could spur demand for housing, Amit Modi, director ABA Corp and V-P CREDAI western UP said.

7th pay commission - housingThe recommended 16 per cent rise in basic salary and the 138.7 per cent increase in house rent allowance (HRA) could spur demand for housing, Amit Modi, director ABA Corp and V-P CREDAI western UP said. (Photo: Reuters)

Amit Modi, director ABA Corp and V-P CREDAI western UPIn a move that will benefit for over 1 crore central government employees and pensioners, the Union Cabinet on Wednesday approved implementation of the 7th Pay Commission. The panel in November last year had recommended an overall hike of 23.5 per cent. The pay panel proposes a hefty salary and pension hike for Central government employees and pensioners. The recommended 16 per cent rise in basic salary and the 138.7 per cent increase in house rent allowance (HRA) could spur demand for housing, Amit Modi, director ABA Corp and V-P CREDAI western UP told FeMoney. Excerpts from the interview:

Q. How will the implementation of Seventh Pay Commission’s recommendations boost the real estate sector since the govt employees will be encouraged to invest money in buying property.
A. The 7th Pay Commission recommendation, in our view, is an important milestone in the real-estate cycle as an increase in salaries of government employees is likely to boost the demand for home purchases. The recommendations are expected to increase incomes of 3.4 crore employees and pensioners once the state and central governments implement them. Hence, housing sector is expected to be the biggest beneficiaries of the rise in income and spending capacity of government employees.

While, on the supply side, the country’s real estate sector is likely to be supported by recent easing of foreign direct investment (FDI) norms by the government, the implementation of the pay panel proposals will play a crucial role on the demand side.

The pay panel proposes a hefty salary and pension hike for Central government employees and pensioners. The recommended 16% rise in basic salary and the 138.7% increase in house rent allowance (HRA) could spur demand for housing. Also the subsidized housing loan limit has been hiked, while the period of continuous service to avail of it has been reduced.

Hence, those employees who will see an increase in monthly salary are likely to play a key role in pushing up the demand in the housing sector.

Q. How the real estate sector has been so far this year and going forward?
A. The real estate sector has suffered a lot pain in the past two years where growing inflationary costs have riddled the sector on one side, while the slowdown in the sector has exerted pressure on other, add to that various woes like halt of construction in National Capital Region due to NGT orders, and the sector was left with a horde of developers facing delayed projects due to halted constructions, severe cash crunch and steep rise in cost of labour and raw material.

Q. Do you have any figures to decode the real estate sector?
A. In last fiscal, housing sales fell 2.2 per cent to 1.58 lakh units in seven major cities but the market is expected to improve by next March on the back of lower interest rates and fall in prices.

However, in January-March period of 2016 housing sales rose by 9 per cent over the previous quarter. A total of 1,58,211 units were sold in 2015-16 as against 1,61,875 units in the preceding fiscal in seven major cities – Delhi-NCR, Mumbai, Kolkata, Chennai, Hyderabad, Bengaluru and Pune.

A positive twist to this otherwise grim situation is the rise in sales in Q1 of 2016 calendar year. This quarter saw a sale of 42,521 units compared to 39,001 units sold in Q4 of 2015 calendar year an increase of 9 per cent
On the brighter side, over the last couple of years there has been government focus on “affordable housing”, and a public desire by the Modi government to provide housing for all, hence the affordable segment (sub Rs 50 lakh) continued to command the largest shares of total residential sales and more than 50 per cent of total sales in all four quarters of the financial year came from the segment.

With demand remaining strong for the segment and government announcing some incentives for the segment, it is expected to drive the sales going forward. The segment is expected to see further traction with the recent incentives announced in the Union Budget for both developers and first time property buyers.

Q. What factors will drive the real estate sector?
A. The big hope for the sector now hinges on the prediction of an above average monsoon, the continuing low inflation trajectory, better transmission of rate cut by banks and an overall pick-up in the economic activity. Better home sales are expected to gradually move ahead by the end of the year and will also see a spurt in launches in some locations. The implementation of RERA Bill will also help the industry’s cause by bringing in more transparency and enhancing consumer confidence and at the same time weeding out fly-by-night operators by forcing standardization in operating practices. Hence, we can expect the signs of revival in the sector by October-December or the January-March period.

Q. Major cities that will provide better return on investment for real estate in 2016?
A. Infrastructure makes a city worth investing and also drives the real estate growth. Bhiwadi, Jaipur, Ghaziabad, Delhi (L-zone) and Faridabad are good investment picks in North India as infrastructure is one of the major factors that is driving real estate growth in most of these cities. Additionally, property prices in these cities are relatively affordable.

Also Gurgaon, Noida, Jaipur, Neemrana and Lucknow are best cities to invest in North India as most of these are witnessing good development, investment in infrastructure, and have a good existing or developing economic base which is or will attract more people, thus driving the need for real estate. Jaipur and Lucknow are capital cities and enjoy good investments into infrastructure by the state governments, while also enjoying good connectivity and have seen healthy investor participation, albeit largely in the residential sector.

While Noida and Greater Noida have been touted as top investment hubs, it is Thane and Navi Mumbai that gave investors maximum returns in the past four years and will continue to give best returns to its investors.

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