Will real estate be the key for India’s economic revival?
Last year, when the whole world was awaiting the dawn of a new decade, expectations were high about economic sentiments and the future appeared bright and promising. In the Indian real estate domain too, it was being estimated that the future ahead was full of promises, given the safe legal framework adopted by the government and the emphasis on jurisdiction based on customer rights. The country had moved up the ranks to the 63rd position on the World Bank’s scale of countries in the ease of doing business category. As a result, it was expected that the real estate sector would grow exponentially from US $120 billion in 2017 to a whopping market size of US $1 trillion by 2030 and meet the aspirations of a young population. The sector was also projected to contribute 13 percent of the country’s GDP by the year 2025 and it was expected that income generating assets like commercial, IT and retail would continue to attract investors along with ready-to-move-in residential apartment units.
However, the narrative transformed once the pandemic struck and the ensuing lockdown that was enforced led to a halt in all kinds of economic activities coming to a standstill. Now, the growth projections of the economy for financial year 2021 have been slashed by a huge margin. However, as things return to normal, the question on everyone’s minds is: Will the real estate sector drive India’s economic revival in the future? This is being asked because the sector is the second largest employer and is an essential component of India Inc, with nearly 300 industries relying on it for growth purposes. Therefore, it is of utmost importance that steps be taken to revive this sector which may assist the economy in the future.
Six months into the pandemic, we have seen the government already taking some steps to help the real estate sector reboot. The first effort was in the form of a lowering of the repo rate by the Reserve Bank of India with a view to infuse liquidity into the banking system and lowering home loan interest rates and as a result, home loan rates are the lowest today. Moreover, the government also announced a six-month loan moratorium on repayment of all term loans, including retail loans and advances to MSMEs. This was done to ensure that developers would have sufficient liquidity at their disposal, which would further encourage them to turn the tide. Also, with no defaulter tag, developers would be able to raise additional finance from various institutions. In another bid to increase the demand among homebuyers, the states are also thinking of lowering the stamp duty and states like Madhya Pradesh and Maharashtra took this step to encourage homebuyers to purchase properties during the pandemic.
Apart from efforts by the government, real estate companies were devising newer and smarter ways to grapple with the pandemic by coming up with offers like cash discounts, GST waiver, and attractive payment plans, to name a few. The industry also transformed the manner in which the business of home buying was conducted by increasing their digital footprints and adapting technology to conduct business. All these joint measures and changes appear to have borne fruit and gradually, as economies open up, real estate companies too are reporting that sales are moving up.
However, having said that it would be good if the real estate sector receives more support in the form of policy reforms and the first step in that direction would be the granting of infrastructure status to the whole sector, which has also been a long-standing demand of industry stalwarts and practitioners alike. Another support could be in the form of a streamlined approval process by the adoption of a single-window clearance system, that would allow project approvals to be processed in a more efficient manner, thereby resulting in lower construction costs and reducing the overall property costs in the long run. These measures would restrict the effects of the slowdown along with generating demand and reviving the market while simultaneously allowing the real estate sector to lead the way towards growth.
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