‘Real estate revival crucial for economic recovery post-COVID-19’


We examine the important role that real estate will play in the revival of the Indian economy following the Coronavirus pandemic and the steps that the government can take, to support this sector

The year 2020 has been a year of upheavals for the world, as the Coronavirus pandemic hit the global economy. While its adverse impact cannot be stopped completely, India has shown immense resilience, to mitigate the negative impact of the pandemic-induced slowdown. The government also exhibited its support, by taking several quick and assuring measures to strengthen the financial system. However, a few more timely initiatives will augur well for the economy.

 

Impact of COVID-19 on Indian real estate

India’s real estate sector plays a key role in enabling and empowering India’s economy. The dramatic challenge that loomed over the industry due to the pandemic, has soon started restoring people’s confidence in real estate. Buying a home has gained more prominence, after the lockdown phase. As per a recent JLL report, 91% of consumers seek to buy a home for themselves and 61% also believe that it is a necessity and not a luxury.

The pandemic’s impact has been huge and a complete revival is difficult at present, as investment cycles remain affected and even banks facing a moratorium period. The decision-making process has been impacted too. However, there has been a silver lining for the real estate sector, as inquiries for homes have reached the pre-COVID-19 levels.

Also read our in-depth story on the Coronavirus impact on real estate.

 

Real estate revival crucial for economic recovery post-COVID-19

 

How digitalisation can help the real estate sector

Developers who have adapted to the digital world faster, are expected to bring ‘the new normal’ sooner than expected. Digitalisation has played a key role in bringing back inquiries, as stepping out of home remains a challenge in the new normal. Living spaces are also being re-designed today, to make work-from-home more relevant and useful. The designs are becoming more flexible, structured and adaptable, to cater to the requirements of the future.

 

Reforms that are needed, post-COVID-19

Nevertheless, housing belongs to a sector that is highly taxed. When GST was introduced, the message was clear that the end-user will be paying for it and that it must be a pass-through mechanism. Now, to revive the sector, the government must ensure that about 18% or so of the GST on real estate that the developers are currently absorbing, should be allowed as a pass-through, to bring down the overall cost of the product. The government must also ensure easy access to funds for developers at lower interest rates, below 10%, which will help in lowering the overall cost of making a home and eventually, benefit the customer. This helps to improve affordability, which will facilitate a rise in overall demand and augur well for the whole economy.

Another prominent trend, is the consolidation in the sector. Credible players have capabilities to empower the market. Low interest rates and consolidation will enable the survival and growth of the realty sector and benefit more than 250 ancillary industries. The residential market constitutes 80% of the total sector and has proven to be resilient in tough times. Established players with proven track records will benefit the customers at large. More transparent and on-time deals and delivery, will bring back the overall confidence and trust in the market. This is the direction in which all credible developers, who believe in building long-term, sustainable institutions, are working for.

 

Government initiatives that can boost the property market

The Maharashtra government has taken the lead, by reducing the stamp duty on real estate on registration of properties. This decision is indeed laudable and has been hailed even by the housing and urban affairs secretary, Durga Shanker Mishra, recently. He also urged other states to take similar steps, to boost demand in the real estate sector. The government’s approval of Rs 9,300 crores from the Rs 25,000-crore stress fund, which was set up to complete stalled housing projects across the country, is another positive initiative. This shows that the government has recognised the significance of real estate revival, as it will not only boost employment opportunities but will boost demand and growth in all the related industries. Cumulatively, all these positive steps are likely to spur market sentiments, especially during the coming festive season.

If such timely steps are taken by the government at the centre and at the state-level, the volume of transactions will improve, which will ensure that there is no actual revenue loss for the governments. Steps taken in the right direction, will aid affordability for buyers, as well and help reduce developers’ stress. The volume of transactions will go up, bankruptcy will come down significantly along with the production cost and drive more consumer demand. There is no shortage of land in India and the growth of the real estate sector, will not only fulfill the ‘Housing for All’ policy but will also help revive the economy.

The sector is working closely with the government to bring revival and change to the current scenario more positively for stakeholders, buyers and to boost the economy. The new India is rising and needs timely and thoughtful support to bring the prime minister’s mission of ‘Aatma Nirbhar Bharat Abhiyaan’ to fruition.

(The writer is VC and MD, Sobha Limited)

 

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