By Ibu Sanjeeb Garg
Beating the Rhetoric
The performance of the economy of any economy often depends on a few keys sectors that in essence define the economic narrative of any country. Among all such indicators one of the key indicators is perhaps how the real estate sector performs. Since 2011-12 the real estate sector has not performed well in India. Developers have not been able to deliver projects, environmental clearances and other legislations have taken time. At the same time, non availability of funds have curbed the ability of developers to hand over their projects in time.
To understand how the Real Estate sector has essentially performed one can look at how the Real Estate Sector has behaved in the Delhi-NCR region. Till a decade back the Delhi NCR sector was witnessing a massive boom in terms of property prices as well as number of projects being launched. Delhi along with Gurgaon, Noida and Faridabad seemed to beat all pundits in terms of returns that real estate was delivering. While some felt that markets needed correction yet the price continued travelling upwards. And it was then somewhere around 2013-14 that the reality started creeping in . Delhi NCR witnessed the largest number of unsold inventory anywhere else in the country. Noida accounted for a large part of that share. Whole buildings of ghost flats stood unused. At the same time the financial health of a number of developers came under the question. A more specific example in this case can be the example of the Dwarka Expressway which was launched with much fanfare. This road which would run parallel to NH8 connecting Jaipur and Delhi, proposed to connect Dwarka with Gurgaon .
New projects were launched with much fanfare and since then almost six years have passed but the proposed road despite being declared a national highway still has a long way to completion. Some projects have been delivered but investors are now looking for a way out by reselling them sometimes almost at 20% lower rate than the rate at which developer seems to be selling. The Dwarka Expressway has been majorly plagued by land acquisition issues , farmer compensation among others. The completion of the project still remains a distant dream. Other areas of India including Bengaluru and Chennai have performed comparatively better. Yet the recent demonetisation drive has further stressed the sector which had shown signs of recovery in recent months.
To understand what ails this sector and how it can revive itself one must however first understand the effects of demonetisation in this sector. Although it is argued that a large part of black money is in real estate yet this is primarily in the resale market. This is because in the last few years developers have cleaned up their balance sheet and most of the major players transact in white. In this segment demonetisation will have no major role to play because the cash component in this sector is very less. It is in the resale market that demonetisation will have a role to play. In this sector cash component still plays a major role and hence demonetisation is expected to play a role towards reduction of prices.
To correct the deepening crisis of the real estate sector one of the first steps that must be taken is affecting the reforms in the real estate sector. The recently formulated Real Estate regulation Bill must be established in spirit. Developers must have the option of walking out if they are unable to deliver, at the same time consumers must be compensated adequately. Another important step that must be taken in this regard is formulating a proper exit policy for developers in case they walk off. Issues pertaining to returning the land to the government, inviting collaborations for unfinished project among others must be carefully calibrated and clearly stated. The recently announced deadline towards announcing the implementation of the Goods and Services Tax net is another major reform that is further expected to correct the real estate market in India.
Another major area that must be looked at is recalibrating the finances of major builder companies. A large number of builders are on the verge of financial collapse due to inadequate capital and no demand .The government must bring on special financial vehicles in form of loans from banks which are monitored by the government to the extent for these companies to deliver their products. A detailed repository of unsold inventory must be build and then they must be used by the government to link them up with the governments own Affordable Housing Scheme for all.
A third area of concern is how compensation is made to those whose lands are acquired for certain projects. For this however the question must also be linked to the larger question of land reforms and compensation. This is the however perhaps the toughest reform that must be effected in order to reform the real estate sector.
Thus in order to reform the Real Estate Sector in India a number of multilateral reforms must be carried out . It is a difficult road ahead but the change and the process has began and rightly so in the desired direction.
(The views expressed are personal)