While the reforms have had positive implications for the real estate sector, there are still short-term challenges which need the government’s attention.
By Rakesh Reddy
The incumbent government has implemented numerous policy changes like RERA, GST and affordable housing, which have significantly impacted the real estate sector. These reforms have brought in dynamic changes which have led to positive growth momentum in the sector. The implementation of RERA introduced formality and compliance which has made the home buying process much more lucrative and transparent, leading to increased credibility and reliance amongst buyers. The rationalised GST rates reduced the pricing disparity between under-construction and completed projects, spurring the demand for new projects.
While the reforms have had positive implications for the real estate sector, there are still short-term challenges which need the government’s attention. It is important that the new government is given a clear mandate so that they can provide a strong impetus for growth. Supportive measures must be taken to continue this accelerated growth and create more stability over the long term. One of the key requirements is that the real sector receives an industry status. Additionally, a process of single window clearance for approvals is also much desired.
The granting of industry status to the entire real estate sector is at the forefront of our expectations. We have seen the impact of industry status on affordable housing with many reputed builders now launching projects in the affordable segment. The growth of the real estate sector has a multiplier effect on the growth of the entire economy and is responsible for millions of jobs. This sector is a significant contributor to India’s growth and is also the second largest employing sector. The contribution of the sector is set to grow at a rate of 30% Compound Annual Growth Rate in the next ten years and is expected to have revenues worth $180 billion by 2020. The industry status will allow financing to be available to the builder at lower interest rates. As a result, projects will become more affordable for the homebuyer.
We also expect streamlined approval processes enforced by RERA and implementation of Single Window Clearance. This will ensure timely processing of project approvals, resulting in reduced construction costs, thereby substantially reducing property costs.
Supporting and incentivizing players who are venturing into new asset classes in real estate, like affordable housing, warehousing and logistics, co-working spaces, co-living spaces and light industrial spaces will benefit the industry extensively. The government should also undertake reforms both from a regulatory as well as monetary perspective in resolving the NBFC crisis. The NBFC crisis had led to illiquidity and an increase in the financing cost for developers. Solving it will rejuvenate the sector. Further, the government should provide an industry status to real estate.
While the new government should continue with some of the initiatives that were announced in the interim budget like extending benefits under Section 80-IBA of the Income Tax Act on affordable housing projects that are registered by 2020, TDS exemption on rental income up to Rs 2.50 lakhs, increase in the TDS threshold on interest earned on the deposits and tax exemption on notional rent from second self-occupied house will help the industry, they should re-look at the GST rates levied on the construction material inputs. The new government should rationalize these GST rates.
Last but one of the most crucial factors that can impact the sector is investment infrastructure development. The new government should invest further in developing the infrastructure of the country. Building the physical and social infrastructure for a 10 trillion dollar economy requires a concerted effort from all stakeholders. With the Government’s support, the real estate sector looks forward to reaching new highs in 2019 and beyond.
(Rakesh Reddy is the Director at Aparna Constructions and Estates Pvt. Ltd. Views are the author’s own.)