Budget 2020: Why FM Nirmala Sitharaman should focus on real estate growth to power India's economic resurgence
Dr Niranjan Hiranandani February 1, 2020
Budget 2020: It is from depths that a rise commences; for Indian real estate, 2019 will be remembered as a year in which there was potential for economic growth and a return to normalcy for real estate - and somehow, it fell a tad short. Despite the 'fall short' aspect, 2019 left on a positive note; it left behind hope and expectations about pent up demand from the past few years finally catching up in form of real estate sales across 2020. This effectively also opens up through 2020 and beyond, a 'fast-forward' into a future that will be defined by major changes.
For real estate, it is not just the new paradigm of Real Estate Regulatory Authority (RERA), but also the development of new segments of real estate which have the potential to change the narrative. If the last couple of years have seen focus on affordable housing, 2020 and beyond will be the era of rental housing; of co-living spaces and leveraging new technologies that will ensure faster turnaround of under-construction projects into ready to move in homes. All these will be driven by the rising segment of the new millennial customer, and while traditional segments in real estate will continue to grow, the new age segments show growth potential beyond expectations.
FULL COVERAGE: Union Budget 2020
As real estate charts its growth pattern through 2020 and beyond, apart from new-age customers requiring common amenities and features that reflect global best practices, it will require new technologies that power smart homes, including Internet of Things (IoT). These tech-savvy homes are the new homes that the new-age home buyers want, in terms of living standards and lifestyle.
Taking a perspective beyond just real estate, the Indian economy is in the throes of a slow-down and could be doing better. For that hope to become a reality, industries across the economy, including real estate, have expectations of various positives from the upcoming budget. Usually, before each budget, different industries have their 'wish-list' of changes that would make life easier, in the form of lesser levies and more exemptions. Real estate has a simple proposition: give us the opportunity to play our role in terms of economic growth; given the potential of not just creating shelter, but also the creation of jobs as also enhance turnover in 250-plus ancillary industries - effectively, have a positive impact on India's GDP growth. One hopes that the Budget will offer fresh stimulus for real estate, which has had to deal with a series of disruptions through the recent past.
Let us understand the logic: globally, real estate growth and infrastructure development have powered economic revivals. The Indian scenario is one where over the past half a decade, the government is already working on the first part - infrastructure creation. All it needs to do now is a positive push that will boost real estate.
Over the past few years, the Indian government has understood the challenges faced by real estate since the tsunamis of economic reforms and it has come up with various initiatives aimed at solving the challenges. Unfortunately, these measures have largely been piece-meal, what Indian real estate looks forward to in this budget is a holistic set of solutions which will unshackle real estate and give it a free run to enhance GDP growth.
The Indian economy has in place the blueprint to evolve into one that touches the magic number of $5 trillion; for this to happen, the upcoming Budget will have to deal with pressing and urgent issues which cry out for attention - and remedial action through the proposals which the finance minister Nirmala Sitharaman will present.
If Indian real estate is to play a major role in boosting the economy; it needs immediate support in terms of easing the liquidity crisis; giving rental housing a boost as also rationalising personal and other forms of taxation.
Among the expectations is reintroducing the subvention scheme, especially for affordable homes as also the one-time rollover/restructuring in case of stressed assets. Both are among the proposals Indian real estate absolutely needs in the upcoming budget. Reduction in interest rates on home loans; interest subsidy where it can be provided; enhancement of LTV for home loans to 90 per cent, this should also be applicable to in case of self-employed.
Similarly, allowing companies and corporate entities to be on the 'priority list' to allowing loans up to 90 per cent of the project cost in respect of the staff housing and rental housing. Similarly, reduction in stamp duty rates for all real estate transactions where agreements get registered on or before 31st March 2020.
Proposals that further support affordable housing also give a boost to rental housing will be awaited by the industry. Prime Minister Narendra Modi's objective of 'Housing for All' envisages a role for rental housing stock to be created. Consider Section 23(5) of the Income Tax Act which deals with notional income from house property held as stock in trade: this provision works contrary to the objective of creating surpluses in housing; and this is but one example of why taxation laws need to be rationalised.
Across the spectrum of taxation, there are provisions which are harsh and create genuine hardships to real estate developers, who are already under pressure in the ongoing sluggish market. Real estate industry is already struggling with large unsold inventories. Taxing notional rent (Section 23(5) of the Income Tax Act), after one year from the end of the financial year in which completion certificate is received from the competent authority, will lead to severe financial implications for the developer/industry. It may also lead to no new projects being launched if sales remain low.
One needs to go beyond just homes to better appreciate the multi-dimensional impact that real estate has on economic growth. In sync with infrastructure development, it has the potential to resolve the slow-down that has gripped the Indian economy. Indian real estate has been facing its own share of challenges. Liquidity has been a challenge that has grown in terms of quantum ever since the impact of the tsunamis of economic reforms.
The Indian Government has come up with various initiatives and schemes to try and resolve the liquidity problem, in this Budget Indian real estate would expect a holistic solution rather than piece-meal solutions that have been offered so far.
The problem of liquidity is a complex one, what is needed is a resolution with speed - so, there is a need for 'acceleration', and one hopes that FM Sitharaman does the needful in the upcoming budget proposals.
(The author is President (Nation), NAREDCO; President, ASSOCHAM; and MD, Hiranandani Group)