The budget effect on real estate

Real Estate's Expectations From Union Budget 2013-2014.
The budget effect on real estate

The GDP for the current financial year is not likely to cross the 5.7-5.9 per cent mark - the predicted eight per cent in GDP growth is highly unrealistic. We expect the budget to come up with some immediate and effective announcements to remedy the situation.

In recent quarters, the Government and the RBI have been unable to curb the inflation to a more comfortable level of between five to six per cent. Considering that the upcoming budget is expected to a populist one, given the Union election ahead in 2014, addressing the compromised GDP and skyrocketing inflation must be given highest priority.

The macro-economic concerns are having a cascading effect on Indian real estate. Here are the considerations that the sector needs from the upcoming budget as well as in terms of overall enablement:

Ø  Reduce High Cost Of Borrowing

Presently, interest rates charged by the banks to developers and home buyers are at an all-time peak and need to be brought down. A reduction in the base rate (rate below which no banks can lend to the corporates or industries) is necessary to help banks lower their lending rates. The Government should address these concerns in the budget, and this should be followed through by RBI in terms of easing the repo rates and relaxing other policy instruments such as the CRR, SLR, etc. to inject liquidity into the system. This is essential if the Indian economy's key sectors such as manufacturing and real estate are to grow.

Ø  Increase Infrastructure Allocations

The budget needs to increase infrastructure spending in urban areas with a view to unlocking the value of neglected and hidden land assets in suburban and peripheral districts. This will enable more holistic growth for the real estate markets in our over-burdened metros. The increased demand in peripheral locations in which infrastructure has made the real estate markets there more viable will also help bring down prices in the central areas.

Ø  Provide Real Estate With Industry Status

The country’s real estate industry contributes approximately five per cent to the GDP. Moreover, the real estate sector has grown significantly over the past decade, with tangible transformation in quality and business standards. However, due to lack of regulations and effective policies, the sector is experiencing many challenges on its growth path. The budget must consider the fact that the Indian real estate sector generates countless jobs across its various verticals. By granting it industry status, the Government would enable the sector to access debt lending at better interest rates and reduced collateral values.   

Ø  Take Steps To Provide Better Clarity In Land Titles

This is another policy hurdle which needs to be tackled by the Government. Across the country, land needs the benefit of legally documented ownership assigned to the right persons or entities. The lack of clarity on land titles shakes the confidence of investors, and is a serious hindrance to overall growth. The budget should make specific allocations towards regularising and digitalising land records.

Ø  Provide More Adequate Sources Of Finance

Since the sector is not under the umbrella of any specific regulatory authority, financing has been an issue over a number of years of credit slowdown. What is required at the current time is the liberalisation of finance for the real estate sector. The budget should enable a broader scope for external commercial borrowings for real estate and provide a general relaxation of financing norms.

Ø  Take Steps To Moderate Rising Input Costs

The input prices for construction have skyrocketed in recent years, rising by more than 50 per cent in the last two years alone. In addition, builders are faced with the increased costs of external and internal development charges, licenses and charges for change of land use from various departments. These factors have been directly responsible for rising real estate prices. The budget should make provisions for subsidised construction materials for low-to-mid-income housing, and rationalised license fees and other government levies.

Ø  Unblock The Approvals Pipeline

In this budget, the Government should come up with simple and effective polices that will ease real estate development approval procedures. Obtaining the 57-odd permissions to begin construction of a project can take as much as two years. During this time, the cost of acquisition or even just holding the land for projects rises. Single-window clearances are the need of the hour, since the absence of such mechanisms causes project delays which prove to be expensive to both developers and end users. 

Ø  Take Steps To Improve Investor Interest

REITs should be implemented so that small investors will get a chance to invest in real estate assets. The enactment of legislation on REITs to provide exit opportunities to real estate investors would be a real step in the right direction.

Ø  Enact the Real Estate Regulatory Bill

The Government should once and for all finalise and implement the proposed Real Estate Regulatory bill, which is needed to bring rationality back to the sector. This draft bill, which is pending since 2009, aims to create a regulatory authority for the realty sector, ensure sale of immovable properties in an efficient and transparent manner, and to protect consumer interest. One key proposal of this bill is to set up a regulatory authority in each state. The sector looks forward to intentions in this regard finally translating into action.

Ø  Implement GST

The Government avowed plans to introduce GST sooner rather than later need to be implemented. This will go a long way in streamlining the economy and providing stimulus to GDP growth.


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