<div>The strategic importance of India’s realty sector as an engine of growth cannot be emphasided more. Playing a central role in the development of the country’s infrastructure base, the real estate sector is one of the largest generators of economic activity. With multiple cross-linkages across various industries like cement, steel, chemicals, IT/ITeS, manufacturing and retail, the real estate sector is at the core of the construction industry and is a conduit for private sector participation in India’s built environment. <br /><br />Within the realty sector, the housing segment offers the greatest potential and opportunity. A recent report by the Confederation of Real Estate Developers’ Association of India (CREDAI) titled “Assessing the Economic Impact of India's Real Estate Sector 2013-14” documents that the real estate sector had a total supply pipeline of close to 3.6 billion sq. ft. lined up for completion in 2013. About 98 per cent of this is concentrated in residential segment, including organised as well as unorganised space. The rest includes organised commercial office and retail space in Tier-I and some Tier-II cities.The total economic footprint generated by the construction of this real estate pipeline can be gauged from the fact that it will require a total investment of about INR 254,000 crore, which will help generate revenues worth INR 370,000 crore, and provide employment to about 7.6 million people across the country. <br /><br /><strong>Persistent Woes </strong><br />There are pertinent and long prevailing issues ailing India’s real estate sector. Despite repeated petitioning to the central government, the sector has not been accorded the status of an “industry”, consequently affecting the sector’s ability to access debt lending at better interest rates and reduced collateral values. Swelling cost of construction, higher cost of finance due to delay in approvals, lack of availability of serviced urban lands, absence of single window approval system, slow reforms and dawdling pace of growth in infrastructure are some of the other significant issues curtailing growth of the sector.<br /><br /><strong>Unlocking the Potential</strong><br />The three major promises made by the National Democratic Alliance (NDA) in their manifesto having direct implications for the real estate sector include (i) development of 100 new cities; (ii) implementing a new land use policy; and (iii) planning for low-cost housing. Prime Minister Modi’s pledge to ensure ‘Housing for All’ by 2022 presents anINR 9 lakh crore opportunity for the sector.<br /><br />Budget 2014-15 holds the key to unlocking this opportunity for India’s real estate sector. Key issues that await government attention are the following: <br /><br />Conferment of “Industry” status, at least to the Housing Segment:Both from a developer’s and a consumer’s perspective, there is merit in according real estate sector with the official recognition of being an industry. It is imperative for the sector to be recognised as a priority sector and ensure easy access to much needed finance, bring down prices and kick start the economy. Even if industry status for real estate is not conferred, housing segment should be given that status. This necessity needs to be addressed particularly in pursuit of lowering the national housing deficit. Further, while 100 per cent FDI is permitted in the real estate sector subject to certain norms, the inflows have been limited. The conferment of the special status will give the sector the identity of an organised sector and assure investors in the international markets, paving the way for greater FDI inflows, easy sanction of loans for projects and stabilisation of interest rates. <br /><br /><strong>Single Window Clearance Mechanism: </strong>One of the major needs of the hour is the single-window clearance system for project approvals, especially for the housing segment in order to curb the ongoing delays in project sanctioning. Currently, this process is very tedious and takes 1-3 years, affecting the timelines and scheduling of the projects. Moreover, there is no transparency in the system. A single-window clearance would help to speed up the approval process thus boosting the sector in the long run.<br /><br /><strong>Tax Appropriations: </strong>There is great optimism associated with the establishment of the new government in impacting real estate pricing. Further, reduction in interest rates on home loans, implementation of the proposed GST framework and the implied tax benefits to buyers are other expectations that will augur well for the sector. Going forward, taxes on under-construction properties must be reduced as it will help first home buyers. Service tax, sales tax and VAT on built-up etc. are other chargesapplied during the construction of the project whereas completed properties only attract registration charges. The budget presents an opportunity to offer some benefits for buyers opting for under-construction properties, which will accelerate the demand-supply cycle. Presently, the only benefit that the customers get is the option of staggered payment.Moreover, the current income tax benefits on deduction of interest on housing loans are considered inadequate. Upward revision in interest rate on home loan deduction limit and reintroduction of standard deduction are some of the key requirements to provide an impetus to the real estate sector.<br /><br /><strong>Reduction in Repo-Rate: </strong>While the RBI’s continuous increase in repo rate is being done to keep inflation under control, it is adversely impacting the real estate sector as EMIs are steadily rising. Reduction of repo rates will, in turn, lead to reduction in rate of interest on home loans. Reduction of home loan interest rates would encourage more people to go for loans, fueling demand and supply in the sector. <br /><br /><strong>REITs: </strong>Real Estate Investment Trusts (REITs) could have a significant positive impact on the sector by providing a new funding avenue to developers,reducing exposure of Indian banking system to the sector and providing a productive investment avenue for channeling household savings. To kickstart REITs in India, the government should look to announcing favorable tax provisions relating to taxability of stakeholders in a in the upcoming budget. <br /><br /><strong>Affordable Housing: </strong>The new government has announced a clear mandate in terms of ‘housing for all’, and will therefore need to come up with a detailed affordable housing policy. However, to tackle the massive housing requirement of urban India in an effective and speedy manner, the new housing policy should look to suggest some viable methods for making affordable housing possible in public-private partnership (PPP) mode.<br /><br />The government also needs to look into providing additional incentives such as tax concessions and more income tax relief to buyers of affordable housing units. Developers of affordable housing can also be incentivised in various ways, such as income tax deduction, reducing duties. Government should consider providing specific tax holiday benefits for affordable housing projects like 80IA to provide further impetus to the sector. While the government had taken a commendable step by allowing External Commercial Borrowings (ECB’s) for affordable housing, easing norms for the same will allow for greater access. <br /><br /><strong>FDI in Real Estate: </strong>The industry looks forward to the announcement of progressive policies pertaining to FDI in real estate, since the sector is in marked need of a more liberalised funding flow. Lock-in requirements for foreign players and stringent exit clauses have had a dampening effect on FDI in the sector.<br /><br /><strong>Sustainable Growth:</strong>The Union Budget should incentivise adoption of sustainable technologies like rain-water harvesting, zero liquid discharge and solar installations for housing projects. Currently, the incentives being offered are not consistent across all States, and in States where they exist, the implementation mechanism is yet not aligned to the expected output. From a developer’s perspective, there are limited incentives for enabling green initiatives. There is a need for proactive efforts, such as providing extra FSI for projects that incorporate green initiatives and property tax rebates for green developments on a large scale in this Budget announcement. This will enable increased focus of the sector on its environmental responsibility and incentivise development of eco-friendly, green infrastructure. <br /><br />With the twin objectives of spurring growth in India’s realty development and benefitting the end-consumer, expectations of some policy improvements from the upcoming budget are high. To re-establish the country as an economic force and boost consumer and investor confidence,the real estate sector is hoping for the announcement of new progressive policies pertaining to some of the issues of immediate concern. <br /><br />Real estate sector has been at the forefront of the Indian Government’s agenda due to its potential to propel economic growth significantly. Hence, it is imperative that this sector gets due weightage in the upcoming budget for the policies and incentives that aid its development.Budget 2014-15 is being watched, closely.<br /><br /><br /><br />(The suthor, Brotin Banerjee, is MD & CEO, Tata Housing Development Company Limited)<br /><br /> </div>
