Reviving real estate–Slashing GST rates is key

By: |
August 26, 2020 7:30 AM

For Indian real estate, the challenges of ‘restart’ have effectively ended up being a very different ball game from that the other segments of industry are in.

The pandemic and the series of lockdowns effectively deepened the challenges facing the sector over the past few years, with economic, taxation and industry reforms bringing in a paradigm shift.The pandemic and the series of lockdowns effectively deepened the challenges facing the sector over the past few years, with economic, taxation and industry reforms bringing in a paradigm shift. (Representative image)

The key to India’s efforts at restarting the economy and ensuring GDP growth revolves around demand, for a good reason: ensuring the restart of the supply-side is not that difficult. The moot question is: How does one ensure demand, which would successfully enable the buying of what is created on the supply-side?

For Indian real estate, the challenges of ‘restart’ have effectively ended up being a very different ball game from that the other segments of industry are in.

The pandemic and the series of lockdowns effectively deepened the challenges facing the sector over the past few years, with economic, taxation and industry reforms bringing in a paradigm shift.

It is, thus, obvious that something ‘more than average’ would be needed for real estate to restart. Apart from long-pending issues like easy availability of low-cost credit as also last-mile funding for stressed, delayed and stalled projects, the key is having the buyer return to the real estate sales office and make the ‘buy’ decision.

‘Jaan, followed by jahaan’, the prime minister had emphasised—saving lives, then saving livelihood. With the slow return to economic activity, it is apparent that no industry will be able to recoup its losses and recover to the pre-COVID-19 scenario speedily: support-measures from authorities are, thus, needed. For real estate, there are two sets of measures: those that impact the economy in general and those that are specific to real estate. The measures that will positively impact the economy include putting together the broken-supply chain, ensuring return of migrant labour to urban centres and creating a situation where the common man has money to spend in his hand.

For ‘money to spend’, the simplest option is to reduce GST on various goods and services. Industry bodies like ASSOCHAM and NAREDCO have suggested a 50% reduction for a fixed tenure—say, six months. This being done, it will ensure that the consumer has reason to spend in the present (lower tax if she buys now), while lower taxation rates put extra money in her hands. This effectively will enhance the quantum of goods and services bought across the economy.

Money going to more sellers and producers as a result of lower GST will result in more transactions, effectively boosting the demand-side, in turn creating need to produce more. This will not just increase jobs across segments like manufacturing, logistics and sales, but also fuel demand for raw materials. This step has the potential to positively impact the overall rate of recovery. For real estate, it will incentivize the ‘fence sitters’ to stop procrastinating, and take a ‘buy’ decision.

Reducing stamp duty and registration rates on real estate will make a major difference, and bring back traction to sales. Further, reduction of home loan interest rates as also enhancing taxation benefits on repayment of home loans will enhance the positive impact. Rationalising cess, duties and charges for permissions and clearances will reduce the burden on the developer. It is about a series of measures that take ‘ease of doing business’ and ramp this up to ‘encourage further business growth’.

Easy access to low-cost credit, last-mile funding as also enabling a one-time rollover to restructure debt will help many a challenged developer to overcome challenges of stalled and delayed projects. A ‘one size fits all’ list of measures that positively impact real estate will be difficult—across different micro-markets and segments, the numbers vary. So, reduced GST, reduced stamp duty and registration, reduced home loan interest rates, higher taxation benefit tied to repayment of home loans, lower rate of interest at which credit is made available to developers—all these will create a positive sentiment, ensuring real estate recovers and returns to pre-Covid-19 levels.

The author is National President, Naredco

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