The Indian real estate sector is undergoing a deep overhaul which is much beyond imagination. Metro cities are bustling with massive beehive-like infrastructure work; affordable homes are shaping a new skyline; investments worth millions of dollars are pouring in from sovereign funds; and a significant section of fringe players are on the edge, engulfed by a new order of reforms which is driving consolidation. Meanwhile the initial concerns from geopolitical uncertainties such as the US polls, BREXIT, and other crucial elections in Europe have faded away. With all economic indicators in the pink of health, the need of the hour is to embrace a monetary policy that propels growth.
There is ample heartburn across the industry in the wake of the new regulatory environment. Widespread anxiety, whipped up by the implementation of Real Estate (Regulations &Development) Act, 2016 and the recently rolled out Goods and Services Act (GST), reflects in the transaction books. New launches have dried up, home sales have slipped and piles of unsold stock are evident. But at the same time there have been some positive takeaways which will augur well for the sector in the long-term. There is an indisputable switch towards building affordable homes. Co-working space providers are emerging as the new big ticket players in the occupier market. And, the logistic sector is attracting milliondollar investments. In a nutshell, the Indian real estate sector is probably grappling with the fear of the unknown. We experienced a similar dilemma in the recent past when demonetisation crippled growth. But a year on, the sector is looking up towards a bright future.
First, the roll out of GST, the single largest tax reform post-independence, triggered some momentary disturbances much like the initial heartburns due to demonetization but augur well for the industry in the long term. Among the various economic policies of the Narendra Modi-led government, this will be one of the most important milestones.
GST would be extremely beneficial for the logistics sector. With a wave of new infrastructure taking shape in the forms of ports, roads and rail networks, the new tax regime would draw massive investments which would potentially transform the look and feel of the warehousing industry.
The impact of GST on real estate would be primarily tax neutral but loaded with gains for the affordable housing sector. The finance ministry has made it very clear that there should be no additional tax burden on consumers. It would also add another strategic push to affordable housing, which in turn will drive recovery of the residential sector.
The intention of GST is to bring in efficiency in the entire tax system, the implementation of which will see lot of teething issues. But eventually it will pave the way for an extremely efficient tax system.
Secondly, the RERA Act has drummed up buyers’ confidence in the sector. We have already seen the spontaneous action by the Maharashtra regulator, or Maha RERA. Even as other states struggle to bring out their respective versions of the central Act, the new order in the housing sector is an undeniable reality.
The regulation is set to bring a sea change in the realty landscape of the country by attracting new investors and customers.It will give long pending protection to the interests of end-consumers, and give a fillip to the confidence of various stakeholders including fund providers such as banks, other financial institutions and private equity funds.
The sector would also transform into a more organised and transparent place under this regime. We have seen in the past that regulators have brought in more efficiency and transparency in telecom, insurance and financial sectors. Information pertaining to the real estate sector will be available in a systematic manner, leading to easy accessibility and transparency.
The government’s push towards affordable housing, banks cutting down home loan interest rates, and uptick in buyers’ sentiments would collectively revive the much-ailing sector.
India is perhaps the only bright spot among emerging markets in the world today. The International Monetary Fund’s recent World Economic Outlook has predicted an envious growth rate of more than 7% for the country. In addition the Indian Rupee has been a top performing currency among its peers over the past couple of years.
The strong fundamentals, robust economic growth, political stability, controlled inflation and lower interest rate regime have improved India’s chances of a sovereign ratings upgrade within the next two years. However, the recent loan waive-offs can be a cause of concern.
Considering the benign inflation numbers, we hope that Reserve Bank of India will adopt a growth-inducing dovish monetary policy.A growing economy would signal healthy consumption across all genres of real estate. With tamed inflation, uptick in industry sentiments and a good monsoon, the need of the hour is to embrace a monetary policy that propels growth.