Gurugram, 18 December –. Through 2020, the Union government announced a series of reforms to revitalize the economy and many of these target various facets of the Indian real estate sector, ranging from increasing funds for affordable housing, to incentivizing banks to disburse more housing loans, and removing hurdles to make information technology (IT) firms more competitive.
We believe the Union government has taken steps in the right direction and many of these have achieved moderate success. However, to achieve sustainable real estate sector growth, the sector needs more prolonged reforms. We propose the following recommendations:
“As we look into 2021, we believe there is enough opportunity for a revival of the Indian real estate sector, backed by targeted reforms. As the economy recovers in 2021 and the employment level inches up, the residential sector too will see an uptick in demand especially in the mid range. During 2020, the government has initiated several reforms towards the real estate sector aiding both the demand and the supply side. We believe that affordable housing will continue to gain traction led by the extension on interest of affordable housing loans, as well as the renewed rigour of the Pradhan Mantri Awas Yojana,” said Sankey Prasad (FRICS), Chairman & Managing Director at Colliers International India.
Financial relief packages in 2020 and Colliers’ analysis of these measures that may impact the real estate sector in the long-term.
- PMAY-Urban scheme picks up pace to meet ‘Housing for All’ by 2022
Overall, we believe that while PMAY-Urban had a slow start in the initial years, the Union government has realized the importance of the scheme in the assuring the safety, health and well being of its citizens. The government’s latest Union Budget, announced in February 2020, represents more than a two-fold rise in outlay from the Union Budget announced in February 2020. The increased allocation ought to create more jobs and improve livelihoods of people. Further, we expect this to have a multiplier effect on the economy by stimulating demand for real estate ancillary industries such as cement, and steel, among others. We recommend the government consider deferring the timelines for payment of booking amount to provide a buffer to the beneficiaries. This should enable them to complete the booking process and avail the accrued benefit.
- Extending incentives for developers and homebuyers to strengthen affordable housing
Developers began focussing on the affordable and the mid segments only since 2016, due to slow demand in the high-end and luxury segments. Both tax incentives were envisioned to lend a push to the demand and supply of affordable housing units and help achieve the Union government’s target of Housing for All by 2022. We believe this piecemeal approach is not desirable since it takes a while to build up a pipeline of new homes.
Given the setbacks received to the real estate industry in 2020, which resulted in slowing down construction and sales, we propose that the scheme be extended by at least another two years and tied to the aim of Housing for all by 2022.
- Extension of interest subsidy on loans: Need to redefine affordability
Colliers believes that the extension of subsidized interest rates should bring comfort to those homebuyers who have been unable to purchase their homes.
- Extension of DCCO provides some breather to developers
Extending the DCCO, to which the repayment schedule of an entity is linked, should provide a breather for developers in terms of financial stress and help them better manage cash flows. The resultant shift in repayment schedule cannot be treated as restructuring for commercial real estate projects. This ought to help developers use this relief to plan and alter construction timelines of their ongoing projects.
- Extension on real estate completion timeline gives a breather to developers
The extension of completion timelines under the RERA should provide relief to developers, who have been grappling with stalled construction due to a nationwide lockdown and reverse migration of urban labourers.
- Infusing liquidity to NBFCs should help project completions
Due to the ongoing pandemic, the residential segment has experienced lower sales velocity, leading to near-stagnation. Under this scheme, the government plans to buy the debt of NBFCs and housing finance companies. We believe that this is a step in the right direction, and it should provide the much-needed boost to the ailing residential segment. We recommend private investors consider partnering with the SWAMIH fund to participate in the opportunities presented by the fund’s last-mile funding strategy.
- Lower Stamp Duty to enthuse buyers
Lower stamp duty charges in Maharashtra and Karnataka have enthused homebuyers by increasing affordability. We recommend immediate implementation of this measure across all states with a timeframe of at least two years. We expect this to revive the real estate markets, with the state governments likely see a net increase in their revenues even if the rate is lowered. Once that takes place, they should move further to simplify the taxes on real estate by subsuming Stamp Duty under the Goods and Services Tax.
- Easing registration and other rules to make Indian outsourcing firms more competitive
Removal and easing of restrictions ought to increase the ease of doing business and increase the competitiveness of Indian IT-BPO (information technology-business process outsourcing) firms. We envisage this move boosting the start-up culture in the absence of red tape that cost time and money. With work from anywhere (WFA) becoming a new catchphrase, firms can set up offices in Tier II and Tier III cities and hire locally, driven by a diverse talent pool in such cities which have top-notch educational institutions
- Lower risk weightage on home loans to increase access to capital
This measure lowers banks’ requirement for loan provisioning and reduce their overall costs, which can get transferred to customers. This will help to further reduce interest rates on loans and overall demand for housing units will get a boost.
- Relaxation on upfront cash to ease construction firms’ cash flow
This measure should help construction contractors involved in government housing units to reduce their locked-up capital and use it to speed up the construction and achieve faster or timely completions.
- Extension of emergency credit line guarantee scheme to help completion of real estate projects
We expect this to help small to mid-real estate developers in completion of projects that have been stuck since the beginning of this year, and to provide some solace for related sectors such as cement and steel, amongst others. Overall, we believe that the government has taken steps in the right direction to stimulate demand for the sector and giving some relief to developers.
“The Union Government and the State Governments of Maharashtra and Karnataka responded to the situation admirably through their various policy initiatives this year. However, the Union and all State Governments need to look beyond just this year and the next to ensure that the ailing real estate sector gets the necessary support to contribute more handsomely to India’s economic growth. The policy initiatives need to target timeframes of atleast 2-3 years within the overall ambit of schemes such as Housing for All to have a long-serving impact,” said Siddhart Goel, Senior Director and Head of Research Services at Colliers International India.
