By Anjan Roy


For many many years, India’s economic paradigm used to be defined win the political articulation of popular demand: “roti, kapda aur makan” In the last three decades, we seem to have graduated from our list of demands. By and large the overall demand food and basic necessities (represented by kapda) have been met. If you look at the inflation figures, for at least two decades, the prices of basic food items—namely, rice and wheat— have been remained stable. It is only for better kinds of food —like fruits and meat and eggs— are rising indicating that we have reached higher levels for food demand which is being described as “protein inflation”.


Where we have to still a good deal of shortfall in fulfilling demand is in housing. Not that people do not have houses. They have. But these are far from modern concept of houses. There is huge shortfall in meeting the demand for proper housing. 


Curiously, housing shortages persist and despite ambitious programmes —like Prime Minister’s Awas Yojna. Any significant achievements in this regard have remained elusive. Yet, any step in this direction could be a major catalyst in the overall growth process.


Housing and real estate sector has been estimated to be the third among 14 major industry groups in its contribution to growth in terms of direct, indirect and induced impact. The overall multiplier effect of investment in the housing sector is much higher than, say, manufacturing industry or even mining.


In the current context of a general slowdown, the real estate sector thus should be a target area of attention. The last budget had provided for 2 crore additional house building under the PM Awas Yojna. Obviously, the implementation had been rather sluggish so that the programme could not so far provide enough traction for an uptrend.


Real estate sector —including housing, commercial office space, retail and hospitality— is estimated to reach a market size of $1 trillion from around $120 billion in 2017, according to reliable ids try estimates. This is close to nine times growth in about ten years. This could mean adequate investments in the sector, apart from a nurturing legal and rules based ecosystem for the industry. And this is extremely important.


For the housing segment, individual buyers must have the available disposable income to buy new houses. Apart from funding facilities, like easy mortgage laws and bank and non-bank funding, the tax obligations would have to be commensurate. Individual income tax brackets and exemptions at the lower levels of income could become major incentives to house purchases. It has been proposed that a further rise in exemption level by Rs1.5 lakh, over and above the present level, should be given close look to place more funds with the individual.


Besides, stamp duties and the added burden of GST are formidable disincentives for the home buyers. The industry has already asked for subsuming existing stamp duties into the GST structure. Besides, GSY rates should also be collapsed into a single consolidated one, instead of multiple rates.


Willy nilly, the Indian real estate sector is undergoing vast changes in character, nature, in operational methods and above all in funding.


Despite huge demands for affordable housing and dwellings, the real estate sector is veering round more towards the commercial segments. While earlier housing and real estate used to be the principal domain of small family owned firms, funded rather informally, the Indian real estate sector is now becoming dominated by professionally run large corporations. Consequently, their funding is coming from formal financial channels.


Although residential segment accounts for 80% of the real estate sector in India, commercial segment is getting an increasingly prominent attention. Thus, more institutional funding is going to commercial while individual house construction is getting more of traditional funding. With the slow down setting in, new launches of residential complexes have also dropped considerably.


While in 2012, close to 4 lakh new residential homes were launched, in 2018 first half these dropped to less than 1 lakh new launches. Sales of new homes were over 3.5 lakh and these dropped to just over a lakh by 2018. In the last one year the numbers have further plummeted.


More than 80% of the total investments are reported to be flowing into the commercial real estate sector since 2016 and over 60% of the private equity investments are similarly to companies mostly into commercial space building. No wonder that smaller housing projects are facing a crunch and even some of the bigger projects have been stuck at their last mile of completion.


These developments have been the natural consequences of the way demand evolved and the new policy framework created the overall ecosystem for the operation of the segment. On the back of reports of widespread irregularities in the real estate sector, where house buyers were duped by unscrupulous builders and monies have been forfeited, the union government brought in a new regulatory regime.


These included RERA, Insolvency and Bankruptcy Code, adoption of REITs. Besides, the RBI came down and identified $20 billion of bad loans to housing and developers. The new ecosystem had created greater transparency, accountancy and customer assurance. These changes led to initial disruptions. However, with these settling in there is more optimism as well.


Following these reforms, flow of institutional funds have also increased, including some foreign direct investments. International real estate companies are looking at India, as revealed by the Asia Pacific Real Estate Association in its last report. But once again their exclusive interest is in the commercial real estate segment and some very high end urban luxury home construction projects.


The real estate sector in India is now standing at a point of forked roads. While there is huge demand for residential properties, the funds and expertise is following into commercial sector.


Since India would be growing fast and an estimated 75 million young families would have to be accommodated in urban concentrations spread throughout the country, rental housing would have to be the biggest centre for housing, as opposed to individual owned houses.


To attract a commensurate amount of investment in building these accommodations in Indian cities, new smart cities and semi urban areas, it will have to be professionally managed rental housing as the answer. For that premises tenancy acts would have to be changed to attract investment.


With these reforms, both commercial real estate as well as housing would get the required funds flows and there could be an even development of the entire real estate sector. This is the new blueprint for Indian real estate development. (IPA Service)


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