The four years of the Narendra Modi government, marked by landmark reforms, have seen the complete transformation of the unorganised and opaque real estate sector into a regulated, transparent, affordable and consumer-friendly asset class.
Notwithstanding the global slowdown, Indian real estate’s troubles have been self-created. The sector has been bogged down largely due to lack of regulation and transparency and inflated pricing, owing to speculative operations. Over the years, the foul play by a large number of realtors played havoc with the sector. It is in this backdrop that the government put the focus on undertaking reforms to address these fundamental issues plaguing the sector.
The government’s reform and policy initiatives have been directed towards replacing the investor/speculator-driven model with consumer-centric model to ensure that residential property becomes affordable so that every Indian can have a shelter over his head. The results are there for everyone to see.
Property prices have dropped by 7-9 percent in the first quarter of the calendar year in key cities. The government’s flagship mission, ‘Housing for All’, focusing on affordable and mid-segment housing, providing 6.5 per cent interest subsidy (up to Rs 2.67 lakh) under PMAY has been responsible for enhancing affordability. GST has also provided price relief by dismantling multiple taxation and zero tax on ready-to-move homes. All these pro-consumer reforms contributed to bring homes within the reach of the common people.
For long, hundreds of thousands of home buyers across India have been facing hardships due to large-scale project delays. Especially, over 20,000 home buyers in Noida have been under great stress fearing non-delivery of homes due to the developer — Jaypee Infratech — facing insolvency.
The government came to the rescue of home buyers by issuing an ordinance to amend IBC, putting home buyers at par with lenders, thereby paving the way for refund of their money. A large number of housing projects across India are stalled due to shortage of funds, especially as bank funding has been difficult to come. But the reformed and regulated real estate has led to inflow of huge foreign investment of $114 billion between 2015 and 2017, registering a 40 per cent increase in FDI recorded between 2011 and 2014.
Together with FDI, another avenue of developer funding through NBFCs has come as a lifeline for stalled projects, giving new hope to home buyers.
The Real Estate Regulation & Development Act (RERA) has come as a big saviour for property consumers. With its stringent preventive and punitive provisions, RERA has put an end to their exploitation by unscrupulous developers by making transactions fair, transparent and secure.
The reform-oriented government gave top priority to infrastructure development by setting up the Rs 40,000 crore National Investment & Infrastructure Fund.The high priority to highways, with record construction of 25 km per day, has given real estate a connectivity boost.
All the reforms and enabling policies have contributed to the revival of real estate. The worst-hit residential realty has seen a growth of 13 percent in FY18. The commercial real estate has already seen turnaround, with a CBRE report pointing to an all-time high absorption of 11msf during the first quarter of the year, 25 percent up from last year.
The realty revival has also been possible due to turnaround in the economy, with growth bouncing back in the second half of FY18. In the last four years (FY15-18), overall growth rate in the economy showed a modest upstick to 7.3 percent compared to average growth of 7.2 percent in FY11-14.
Though the short-term adverse effects of interruption caused by reforms like demonetisation, RERA & GST have been largely contained and real estate is on the revival path, the government needs to tackle various reform challenges to fast track this process. Notwithstanding GST contributing to ease of business and marked improvement in global Ease of Doing Business Index, there is a need to put single window mechanism in place to speed up projects.
Bringing real estate under GST to derive its full benefits, bringing down transaction costs by rationalising stamp duty and collector rates, according industry status to real estate to access cheap bank funding and effective and speedy implementation of RERA, Housing for All and Smart Cities Mission are the other challenges on hand. Nevertheless, reforms have provided a much needed spring board to real estate to transform into an attractive asset class with sustained growth.