SECTOR HOPEFUL FOR A FRUITFUL BUDGET 2016-17
Real estate sector is considered as one of the mainstays of the Indian economy and correctly so; as it contributes at an average of 6 percent to the nation’s Gross Domestic Product (GDP) each year, and employs over 50 million people making it as the second biggest employer in the country, after the agriculture sector. Being an end user for over 30 allied industries and sectors, a lot is always expected from it. Over the past few decades, this sector has developed leaps and bounds, and has attracted a hefty amount of Foreign Direct Investment (FDI) as well. In the year 2015 itself, the sector brought an inflow close to $35 billion in FDI. Lakhs of crores of Rupees has been already spent on the infrastructure front as well that serves as the backbone for the realty sector, with much more announced and to be allocated. Therefore, this sector being extremely significant for the country’s growth requires a strong support through the government’s initiatives and decisions and hence, this year’s Union Budget, which is to be declared on 29th February, 2016 will play the most vital role in shaping up the upcoming years for the real estate sector.
2015 saw a very different behaviour in the real estate sector with end users becoming much prominent than the investors, who were looking for other opportunities to invest into. With interest rates coming down due to reduced repo rates, falling property prices, stabilizing cost of raw materials attached with economic revival and controlled inflation rate had pulled the buyers back in the market. All eyes will be on Mr. Jaitley to see what he has in store for the sector this budget session, as this will be the second comprehensive budget by this government who has been featuring infrastructure and real estate as the core behind this country’s unprecedented growth.
What this Sector craves for?
- Status of being an Industry – This has been the demand of this sector for over several years now. How does the attainment of industry status help? Amongst various other reasons, it’ll give developers an access to funds at much reduced interest rates and diminished insurance thereby creating housing more affordable which will support this government’s current motto of Housing for all.
- Removal of multiple taxes – Presently, home buyers need to pay taxes indirectly in the form of service tax and VAT. Apart from this, stamp duty is also paid while registering the flats. Government needs to ensure the quick passage of Goods and Service Tax (GST) that went for rounds and rounds in the last two sessions of the parliament and never made out on a positive note. GST will help in substituting numerous taxes with a single tax that will also help in bringing transparency.
- Governing body for the sector – This is the real need of the hour as otherwise end users in this sector will become dried out of the market, because of rising fraudulent cases and delay in delivery of units. This sector is currently valued at over $50 billion and is projected to grow to over $200 billion by 2020. There is a big need for an apex body which will address the concerns of the customers and look into issues of this sector in order to enhance the much needed limpidity.
- Encourage FII participation in infrastructure – India is still an infrastructure lacking country and requires huge investments to help bridge this gap. This Union Budget should make more provisions to enhance foreign investors’ contribution in this sector.
- Fully functional REITs and REMF – Presence of REITs will allow a low entry level and are expected to provide a safe and diversified investment option at much reduced risk; all under proficient management that will ensure the highest return on investment. This new investment vehicle is categorized by its investment in real estate assets as well as limited liability for the unit holders. On the other hand, REMF will help in fulfilment of three major purposes; raising of funds for the expansion of retail businesses, to provide required capital for the development of retail infrastructure and to enhance the quality of housing projects.
Mr. Rajesh Goyal, Vice President CREDAI-Western U.P. & MD, RG Group
The Indian Real Estate Sector has been anticipating Industry status for long now. A sector that generates massive revenue and employment deserves extra attention from the government. Time and again we learn about the urgency to build 2 crore affordable houses. It can be achieved in due time only with the help of Industry status which will give builders’ access to funds at reduced interest rates and reduced collateral thereby making housing more affordable, thus assisting the cause of Housing for all as well.
Mr. Rakesh Yadav, Chairman, Antriksh India
A major miss of the last year was GST whose implementation will basically work on three major elements for this sector; simplification of tax structure, reduction in construction costs and better transparency. Speaking about its contribution post acceptance, we are predicting a nationwide realty sector growth by almost 15-20 percent than projected in the course of next 5-7 years. There will be a quick reaction towards the sector by its customers as demand is bound to increase due to reducing costs and improving transparency in the sector that has been the hurdle making this sector suffer for long now.
Mr. Vikas Bhasin, MD, Saya Group
It is high time that SEBI had approved the structure of REITs in the country but it is still in lurks over its implementation. This budget session would be crucial keeping this in mind, however few changes would be much appreciated like reducing on the current minimum stock size and minimum investment amount of Rs. 1 lakh and Rs. 2 lakh respectively. Also, provisions should be brought in to allow investments in residential real estate as well, which till now is limited to commercial real estate only. Simultaneously, Real Estate Mutual Funds also need to be picked on a serious note so that money can be equally channelled into REITs shares and infra related shares.
Mr. Sushant Muttreja, CMD, Cosmic Group
No doubt the real estate sector is one with very high returns but the period of investment in the real estate has to be judged over a period of 8-10 years, since it is a long term investment. The sector is very confident that the Budget 2016-17 will bring in Real estate regulatory bill, GST bill, Land Acquisition Bill and industry status to the sector. We need a lot of positive sentiment to usher a new era where real estate as always will contribute aggressively to the overall growth.
What customers’ desire
- Reduction in interest rates – Even with 125 basis points reduction and repeated nods by the RBI last year, banks have not passed on the complete benefit to the customers. This has led to higher EMIs than expected which is keeping back the actual demand.
- Correction in cost of registration – Stamp duty and Registration costs amount to around 6 percent in most places, which is still quite high. Decreasing the registration cost by a few basis points would greatly reduce the burden over the end customers. Alternative approach would be to adopt a slab based approach towards the registration fee. However, stamp duty mainly comes under the jurisdiction of the State Government; an instruction from the centre to reduce the cost would definitely help.
- The right to know – In this sector, customers often complain about not knowing the development progress on their units or if there are any changes made, they aren’t notified, and in certain cases, even worse; builders making exit with the hard earned money of the customers. This transparency has become extremely significant which can only be addressed through the passage of RERA.
Mr. Deepak Kapoor, President CREDAI-Western U.P. & Director, Gulshan Homz
The three most important drivers for the real estate sector this budget will be; implementation of RERA to help curb the corruption in this sector and enhance transparency for the customers, execution of single window clearance system across the country to assist in timely commencement and delivery of the projects and proper passage of GST, to avoid multiplication of taxes that confuse most customers. Apart from these, industry status has been in the request queue for long now and must become real this time so as to help the developer pass on direct benefits to the customers through reduced cost of units.
Mr. Ashok Gupta, CMD, Ajnara India Ltd.
The government must focus on and ensure smooth operation of the budget session this year and try to pass as many bills as possible as the market sentiments will be determined to a large extent by how this session directs the course for this sector. Most eyes are set on the misses of last year such as RERA, GST, Land Acquisition Bill and Industry Status. These are extremely important for this sector to grow and perform, and this government has left no stones unturned in announcing mega plans for the future that will be directly affected by the implementation of aforementioned bills.
Mr. Kushagr Ansal, Director, Ansal Housing
At present, the income earned from renting is treated as normal taxable income. This Union Budget, the government needs to provide tax incentives for renting out of residential properties. Providing tax breaks specific to rental income will provide a noteworthy boost to rental housing segment which will help increase rental supply in the metros especially. At the same time, developers have been campaigning for a faster project approval process for timely completion of projects. Faster approvals will push up the supply pipeline, lower prices and also ensure that this sector remains practical as a business. The Budget must also ensure that construction quality norms are not compromised in the process and that faster approvals do not result in support infrastructure failure in new grounds being developed.
Mr. Rupesh Gupta, Director, JM Housing
The country’s real estate stands in anticipation of a lot from this year’s annual budget. There are few pointers though which need immediate attention and that would include the awarding of much awaited industry status and allowing single window clearance for approvals. Industry status once accorded will mean cheaper loans for developers and work flow becoming much more realistic. Single window clearances will mean timely approvals and allow developers to avoid unnecessary delays in their promises of delivery time frames.
- Decrease the lending rates – Raising capital is a mammoth task for developers. The interest rate for builders from a bank can go as tall as 24 percent and on an average is about 22 percent and in fact; raising capital from other sources is more expensive than this. Reducing this rate of interest for builders will help in decreasing the cost of construction and in turn, bring down the cost of a unit for the customers.
- Prolonged approval system – Developers need to get over 30 approvals from various Government officials to get a project rolling. Delay in getting those clearances is one of the prime reasons for delays in projects. Any effort towards reducing this, increasing transparency and rationalizing the process of getting clearances will positively impact the industry.
- Regulating the cost of raw materials – A sudden rise in the cost of construction of raw materials has enforced many builders to pause their projects in many parts of South India and gaining momentum in the Northern parts as well. Although, the cost of cement and steel has decreased by almost 30 percent over the past few years, but prices of few other materials have doubled over the last few years. The Government must regulate these prices for at least key raw materials like cement, iron, concrete, etc. by putting upper caps on their prices.
Mr. Sudeep Agrawal, MD, Shri Group
As India is gearing up for major infra revamp and Make in India, the challenge greatly lies on the manufacturing industry. Over the next few decades, the construction industry will witness a massive growth globally and hence, raw materials such as cement, brick, steel, concrete, etc. will be used in abundance. Therefore, we need to create a perfect balance between the demand and supply along with appropriate consideration for the environment. This immensely depends upon the costs of raw materials used during construction process such as cement, iron, etc. This budget, the government needs to regulate the prices of these materials so as to curtail rising property prices.
Mr. Ankit Aggarwal, CMD, Devika Group
Markets are keen and waiting eagerly for the Union Budget 2016-17 to be presented on 29th February. We have a very strong belief that the upcoming budget could be a make or break event; as this would be the second full budget from the government which has now spent good enough time at the centre to plan out things, supported with huge announcements. Hopes are high with the Finance Minister indicating start of second-generation reforms going forward. Important decisions to look into will be the single window clearance system, decrease in lending rates for the developers and most importantly, Industry Status which itself will help in making funds available at much reduced rates.
Mr. Rahul Chamola, MD, One Leaf Group
The real estate sector has a long list of expectations; as this sector alone contributes to about 6 percent to the nation’s GDP. Biggest challenges for the Government are infrastructure, decreasing the lending rates for developers, regulating prices of raw materials across the nation, etc. Further, we expect that the upcoming budget should give developers access to funds at reduced interest rates and eliminate multiple taxes; thereby creating housing more affordable and in turn will help reduce the burden on the customers. Single window clearance and Industry Status will bring cheers in the developers’ fraternity and bring desired results for the customers.
Mr. Vikas Khurana, Co-Founder, HomzCart
2015 has been a year full of promises by the government that will require key reforms to move forward. For instance, the Smart Cities mission will require next level of infrastructure, the presence of which is possible through acquiring huge land banks. This will need quick implementation of Land Acquisition Bill. Similarly, Housing for all by 2022 initiative will remain a dream if Single window clearance is not adopted at the earliest. Also, in order to keep this sector’s contribution maximum towards GDP, balance between demand and supply along with proper transparency is necessary, which brings our focus back to RERA’s execution. Finally, to bring down the cost of units, Industry Status will allow acquisition of funds at much lowered cost which will directly benefit the customers through reduced cost of units. Thus, this Budget is extremely crucial in terms of future development of the nation’s realty sector we expect government’s full support.