The Indian real estate sector has been riding a growth wave in recent times fuelled majorly by Government measures and higher buyer confidence. However, it is not just fiscal incentives that will help the sector reach another boom. A lot more has to be done as per industry experts. Let us first analyse the overall recovery of the Indian realty sector through looking at past circumstances and how it steadily came back into the mainstream once again.
Why Indian realty suffered in the past
The last few years, possibly post 2013-14 onwards, the Indian real estate industry got a little complacent probably if that is one way of putting it. Developers were easily taking customers for a ride and several fly-by-night operators were coming into the mix as well. Buyers were having to pay hefty EMIs and rent at the same time as developers kept delaying projects. Cash flow from one project was being diverted into new launches left, right and centre. NRIs and other investors in premium and luxury real estate kept speculative activity at higher levels, thereby pushing prices in many housing markets to literally prohibitive levels.
The market then witnessed a major jolt as buyers simply stopped putting their money into residential real estate due to sky-high prices and lack of trust and confidence in developers. Sales figures plunged and inventory kept piling up with developers, going up to record levels in some markets. This led to a major liquidity crunch for the industry which was aggravated in many ways by demonetization.
How the sector underwent a major clean-up
Like several other business sectors, Indian real estate too underwent a major clean-up over the last couple of years or so. Demonetization was the first major step since real estate was no longer the preferred sector for dumping black money or huge cash transactions devoid of any taxation. Additionally, GST proved to be a major organizational reform that brought more compliance into the industry.
RERA was a pioneering move which ushered in higher buyer safety and protection through clearly delineated measures which made developers accountable in multiple ways for the very first time, right from pricing, size, amenities and transparency regarding project details and delivery timelines. This led to several small-time players or fraudulent entities exiting the market and only organized, compliant players continued to flourish. This also cleaned up the sector, making it more attractive for investors. Measures under the Benami Property Act also deserve mention in the clean-up section!
Fiscal incentives that boosted the sector and other measures
The Indian Government came out with several pro-active moves thereafter to boost the Indian real estate sector post this extensive and much-needed clean-up. Most of these were fiscal incentives. Firstly, affordable housing was given infrastructure status and emphasized hugely under the Housing for All by 2022 mission. This led to higher sales figures in this category and growing buyer and developer interest alike.
The Government further incentivized affordable housing with its interest subsidies for various sections under the Pradhan Mantri Awas Yojana (PMAY). This also brought several first-time homebuyers into the fold. Thereafter, the Government decided to slash GST rates to 1% from 8% on affordable housing and from 12% to 5% on under construction properties. This has definitely boosted the sector hugely and is another financial stimulus offered by the Government. Additionally, the Union Budget 2019-20 proposed to put more money in the hands of first-time buyers by raising the zero taxation threshold to Rs. 5 lakh in personal income.
Also, capital gains exemption was proposed up to Rs. 2 crore on the sale of two homes once in a lifetime. Further encouraging investments in second homes, the Government proposed zero taxes by way of notional rent assumption on self-occupied second homes. Additionally, the TDS threshold was raised to Rs. 2.4 lakh from Rs. 1.8 lakh on rental income. These are fiscal incentives that have definitely given the sector a fresh spurt of wind in recent months.
Will these be enough for the sector going forward?
Experts are of the opinion that just fiscal stimulus will not be enough for the Indian real estate sector to boom again. There are several other upgrades that will have to be made for the sector to start properly flourishing in the next few years. Some of the suggested upgrades from experts include the following:
- Superior tech-driven approach and better infrastructure- The Indian real estate industry has to further embrace technology. Valuation should be simpler with tech tools that take into account viability aspects and overall sales/absorption figures along with other parameters. This will help developers streamline their expenses and manage project development better. This will lead to higher sales figures and lower piled up inventory. E-signatures, more online transactions (particularly down payments) and reliance on proptech (several players are already heating up this space in India) will benefit the sector in times to come. The sector will eventually benefit from adapting 3D printing, Internet of Things (IoT), improved materials, artificial intelligence (AI) and blockchain.
- Simpler system of approvals- There can be a one-size-fits-all approach towards project approvals. Simpler approval systems which take all aspects into account including the NOCs, building layout approval, RERA registration and other certificates should definitely work towards boosting the realty sector in the future.
- Legalities- There should be technology driven procedures in place for ensuring cleaner title deeds and other records. Online land records should be available along with swifter verification processes for titles online. Stressed asset resolution should be taken up on priority with better tools and more flexibility in order to ensure faster results. RERA should be implemented better across all Indian States.
- Better analytics- The Indian real estate industry should delve deeper into market research in order to come up with analytics that boost future projects. Data gathering and collection will help developers tailor projects as per market requirements in various segments. This will help them address the demand-supply conundrum better.
- New concepts- Retail concepts will become more innovative while co-working and co-living sectors will continue spurring growth in the sector along with student housing and senior living.
These are a few of the aspects which the Indian real estate sector may consider adopting or analysing in order to scale the next summit of growth in the near future. Fiscal stimulus will drive growth in the short and medium term but long-term profitability will only be possible with swift evolution.