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Budget 2019 Liquidity and sops will turnaround the housing sector
Moneycontrol.com  |  June 27, 2019

Abhinav Joshi

The housing sector expects the government to contemplate on introducing housing bonds in order to provide low interest rate funds to the housing companies.

 

The past few years have been challenging for the residential real estate sector, as it faced issues ranging from falling demand to unsold inventories as well as the liquidity crisis. However, in the presence of strong regulatory mechanisms, such as RERA (Real Estate Regulatory Authority Act), GST (Goods and Services Tax) and Insolvency and Bankruptcy Code (IBC), the sector now is displaying signs of revival. This has also helped generate a conducive ambience around government welfare schemes such as the much talked about `Housing for All Initiative’.

 

The industry has positively responded to regulatory changes and other reforms as they have brought in the required transparency in the developer-customer relationship. These changes have resulted in pushing housing sales in seven cities across India. Not to forget sops offered by the government for affordable housing, including the interest subvention plans that have attracted home buyers.

 

While these developments are re-shaping India’s real estate sector, the industry is still facing the challenges related to fund raising, capital and liquidity. New homebuyers are now insisting on ready-to-move-houses that has impacted sales of under-construction projects. Banks are still behaving with caution while allocating funds to real estate developers and related stakeholders.

 

Considering the aforementioned challenges and as the Union Budget is around the corner, the real estate industry is hopeful that the government will usher in certain reformative policy measures, targeted at reviving the housing sector from the issues that it is currently facing.

 

Steps should be taken to further ease ECB (external commercial borrowings) norms for lenders so that more investments can be availed from foreign investors. The industry expects the government to contemplate on introducing housing bonds in order to provide low interest rate funds to the housing companies — at least those who are investing and constructing affordable housing projects for the lower and neo-middle classes. Another solution to make the HFCs viable would be to grant them a special status at par with the banking sector so that they too can raise funds, and provide them with the bandwidth to offer incentives and sops to their borrowers. This would reduce lending rates and make them more viable economically.

 

With impactful measures such as these, the real estate and housing sector will get a renewed push not only in metropolitan towns but also in the Tier II and Tier III cities, where the availability of good housing facilities and implementation of the smart city project will not only reduce migration to Tier I cities, but also lead to the emergence of new employment opportunities for the common populace.

 

With these measures in place, the housing sector will be on the path of gaining prominence in the economy. Developers should take advantage of the improved regulatory environment, favourable taxes and low GST in the affordable housing section under the Pradhan Mantri Awas Yojana. Though the profit margins would be less, the volume of inventories traded would lead to more capital transaction, which is prospective in the long run.

 

These measures would benefit developers with increased sales and demand from a larger customer base. However, the government must undertake robust steps to mitigate the challenges faced by developers. This will go a long way in renewing investor sentiments and let the developer contribute her part in the nation building process.

 

(Abhinav Joshi is head of research, CBRE India. Views are personal.)