Building on a challenging turf

Vinod Behl

The four years of Modi government are marked by landmark reforms in the real estate and housing sector. As the real estate sector had been unregulated, unorganised and opaque (driven by black money), with unaffordable prices, the government, from the day one, set out on the task of reforming realty. The key missions like Housing for All (with focus on affordable housing), Smart Cities, Real Estate Regulation & Development Act (RERA), GST, have been the hallmark of the reform agenda. Real estate has been facing global slowdown since 2008, except for a brief breather for a year or so. The spate of reforms undertaken by the government further jolted the sector, causing disruption in the already turbulent property market, thereby precipitating the crisis. But as the initial short-term disruption caused by the reforms, particularly, demonetisation, RERA and GST, has blown over, the positive impact is trickling in. This is clearly established by the revival of the residential real estate, which had been hit badly over the past two-three years.

Happy tidings

What’s really an encouraging sign is that two most hit residential markets of Mumbai Metropolitan Area (MMR) and National Capital Region (NCR), have shown 25 and 19 per cent home sales growth, respectively, in FY'18.  Thanks to government’s policies to boost affordable housing, low- cost housing has contributed significantly in the revival of housing, with affordable housing contributing 18 per cent to the overall sales in Q4 FY'18. Policies like Credit Linked Subsidy Scheme (CLSS) under PMAY (Urban) for homebuyers of affordable and mid segment housing, offering up to 6.5 per cent interest subsidy on home loans, besides income tax benefits, are contributing to hike in sale figures. Severe penalities for delivery defaults under RERA, have hastened the completion of projects, in the process, resulting in substantial amount of inventory of ready homes. And the buyers of these homes are enjoying the benefit of zero GST, in addition to interest subsidy and safety of their investment.

According infrastructure status to affordable housing has helped developers (especially those with good track record) to source cheaper funding that has been a road block to timely completion of projects. In the backdrop of squeeze on bank funding, the reforms came to the rescue of developers by stepping up domestic and foreign funding through Private Equity and NBFCs. Developers of affordable housing also got 100 per cent income tax relief to boost supply. The stepped up supply has helped in checking demand-supply imbalance, to some extent, thereby resuming new project launches which were not happening. New launches have given a distinct advantage to homebuyers in terms of price advantage and supply of right-sized homes. The government’s flagship mission, Housing for All by 2022 has also contributed significantly in providing the much-needed impetus to construction of houses, particularly in the EWS and low-cost housing segments where there is maximum shortage of houses. Commercial real estate, encouraged by reforms like Real Estate Investment Trusts (REITs ) has already recovered, with investors  showing increasing interest in rent-yielding properties.

Realising ‘affordable’ dreams

Perhaps the biggest contribution of reforms is that these have made real estate affordable for masses. Earlier, property developers would not go for affordable housing, saying that it was not financially viable. But following incentivised policies of the government, developers, including the corporate players have embraced low-cost housing. Reforms have made real estate consumer-driven and RERA has empowered property buyers. Also, policy measures of demonetization and clamp down on cash transactions, have helped check circulation of black money in real estate, thereby making it transparent, thereby attracting global  investors.The record inflow of global investments is a testimony to this. The entire reform process is leading to consolidation of the sector, strengthening good players and edging out unscrupulous developers, much to the advantage of property buyers, making realty attractive  as an asset class for both consumers and investors. 

— The writer is founder, Ground Real(i)ty Media

Miles to go...

• The key mission of ‘Housing for All by 2022’  is way behind its target despite making considerable progress in the past couple of years. 
• Similarly, another major reform — Smart Cities Mission — has not shown the desired results.
• The banking crisis has precipitated matters for fund- starved real estate developers as bank funding, the cheapest source of finance for property developers, is not easy to come.  
• The ‘Ease of Doing Business’ continues to pose a challenge for the sector. This continues to be a weak link in the entire reform process of the government. Today, the biggest bane of the real estate is delayed projects. The industry captains lament that despite sector being regulated, not much has been achieved in terms of speeding up project approvals as sanctioning authorities have been kept out of the ambit of RERA.

 In view of these challenges, though the full recovery of the real estate will still take time, yet once the sector comes out of the current crisis, it will emerge as a stronger and sustainable asset class.