– By Prashant Utreja
The year 2022 for the domestic real estate market began on a promising note of significant recovery in demand for housing, supported by sustainable execution of infrastructure projects, resumption of business activity, technological development, and adoption of digitalisation. While the resurgence of the real estate industry, despite various challenges, brings a sigh of relief to all stakeholders, three major reforms if undertaken this year will strengthen the boom for the long haul.
1. Creation of an efficient rental ecosystem for low and mid-income households
Burdened by stubborn inflationary trends, peaking home loan interest rates, the rising cost of construction, and a slow market for jobs and businesses, ‘affordability’ of a house will continue to be a remote possibility for a large majority of low and middle-income segments of the country in 2023. At the same time, while developers may deliver a substantial number of the targeted 80 lakh affordable houses as stipulated under the Pradhan Mantri Awas Yojna, the strong wave of demand for houses due to the resumption of the economic activity causing migration of workers to Tier-I and Tier-II cities for work will overwhelm the supply side. In light of this emerging trend post-pandemic, it will be incumbent on the government to review and implement reforms in 2023 that will boost the rental market, a sustainable alternative for households that currently cannot afford to purchase a home. The coming year may see the realization of long pending expectations of the real estate stakeholders such as hiking tax exemption on HRAs, allowing full tax rebates on rental income as well as reducing the tax burden or providing subsidies to encourage realty developers to construct rental housing.
2. Extensive implementation of ESG (Environmental, social, governance) practices
While many real estate giants have taken the commendable initiative to adopt a green business model in line with global efforts to curb the carbon footprint, most of the small and medium-sized developers have steered cleared from ESG programs to avoid high operational costs. The year 2023 will most likely be the beginning of a paradigm shift towards environment-friendly principles enforced by further policy tightening, mandatory sustainability disclosures, certifications, and government incentive measures. However, the key catalyst behind this change is the shifting preferences of home buyers to upscale their lifestyle following confined work-from-home conditions during pandemic-induced lockdowns. Customers are inclined to shell out higher premiums for housing that offers greener open spaces, cleaner air quality, and waste and water management techniques.
3. Structural reforms to make smaller cities the nerve centre of real estate
The government proposed multimodal plans to develop modern logistics and infrastructure connectivity including roads, highways, railways, airports, and ports across the country’s landscape will regain full steam going forward after a two-year-long pandemic-imposed hiatus. The strong connectivity will unlock the enormous potential for economic development in remote and untapped smaller cities and towns and inevitably provide a significant opportunity for real estate businesses to flourish. This is currently also evident from growth and robust employment opportunities in Tier-II and Tier-III cities around major metros which have raised an exponential demand for housing, especially from mid-segment households. Commercial real estate projects will also thrive as more business and IT firms set up shops in smaller cities. Besides, Tier-II and Tier-III cities offer a more cost-effective lifestyle compared with metro cities which are suffering from a lack of land space, high cost of living, and congestion.
A shifting buyer preference following the ill effects of the lockdown and ensuing financial challenges has changed the business dynamics of the real estate market in the country. Conscious efforts by all real stakeholders with help from the government are vital to sustaining real estate as an attractive investment asset for buyers.
(Prashant Utreja is the CEO of Reliance Home Finance)