The real estate sector is one of the highest generators of employment and contributes greatly to the economy of India. However, it has faced tremendous hardships due to various factors and has suffered over the last few years. Currently, the foreign direct investments in the real estate sector are showing steady growth specially focusing on commercial real estate and there are green shoots showing in the residential sector as well.
The Government of India and some of the State Governments did take some measures to help the real estate sector by giving certain concessions. The Government of India came heavily on the financial institutions due to various malpractices in the process of funding for projects, combined with the growing credit risk among developers and has seen financial institutions pulling the plug on the real estate lending. Developers now have nowhere to turn for finance and are in a dire straits.
But there was some cause for optimism as India has finally introduced REIT’s. This is seen as a positive indication for future Indian REIT listings. Domestic developers are now looking at listing portfolios of their own, with two or three new REITs likely to come to the market in 2021-2022.
In order to supplement and help the real estate sector, the following reforms may be considered by the concerned authorities to help the real estate sector recover from the current slump, which are long overdue:
(i) Infrastructure Status: While the status of ‘infrastructure’ has been accorded to affordable housing which permits it to obtain benefits such as lower borrowing rates, tax concessions and increased flow of foreign and private capital, the same has not yet been conferred on the real estate sector. The status of ‘infrastructure’ has been and is still one of the key demands of the real estate sector, which it has been expecting to be announced in the budget for a long time. Granting the real estate sector the status of ‘infrastructure’ would help developers to get various benefits, including those mentioned above, and this will also help in the very difficult aspect of raising funds for projects.
(ii) Land Pooling: It is seen as an alternative to land acquisition under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 which is more beneficial for a landowner and less expensive for a developer. There is less resistance among the landowners in land pooling as the landowners are not forced to give up their lands but they voluntarily pool their land which is then formed into a large contiguous piece of land. Therefore, further incentivising land pooling for the developers by the Government by way of reforms in the areas of permitting higher floor area ratio for development on pooled land may be considered. Additionally, clarifications with regard to the tax implications and applicability of stamp duty for land pooling should be given.
(iii) Streamlining the Procedure for Obtaining Building Approvals: The processes of obtaining building approvals in each State of India are different which creates inconsistency in obtaining such approvals. While States such as Maharashtra have commenced operations of a single window clearance system for the building approvals, most States in India still do not have such a mechanism in place. Further, a sense of confusion is also created, as in a single State there are multiple laws which correspond to different land areas. For example, there are different legislations which are applicable for lands which are: (i) within municipal corporation areas; and (ii) within panchayat areas. Therefore, a single competent authority along with one overarching legislation with respect granting of building approvals should be made irrespective of under which area of the State the proposed project is being undertaken.
(iv) Stamp Duty Rates: The reduction of stamp duty rates with respect to the registration of properties should be considered as a nationwide exercise. While certain States such as Maharashtra, Karnataka and Rajasthan have reduced the stamp duty rates with respect to certain categories of properties to be registered, most States of India have not considered the advice of the Housing and Urban Affairs Secretary to slash stamp duty rates to revive the demand in the real estate sector. Revival of the real estate market due to the slashing of stamp duty rates combined with the low interest rates on home loans has been seen in the State of Maharashtra.
The real estate sector, while already being one of the largest contributors to the economic growth of the country and employment, has faced terrible losses due to the lockdown and various other factors, imposed by the government. A combination of the above-mentioned reforms, if implemented, will put the real estate sector on a fast track towards a boom which the sector has not seen for a long time now.
(By Mrinal Kumar, Partner, Shardul Amarchand Mangaldas & Co)
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