The beginning of better days isn't a prophecy. It was the state of play in India's $200 billion real estate market during 2021.
The year gone by has laid the foundation for the recovery in demand after the great downturn of 2020, with 2022 expected to build on this momentum of recovery further. The upcoming Union Budget for the next financial year is expected to provide much-needed incentives to further fuel the momentum in the sector and in turn, help the industry embark on a long-term growth trajectory.
The wish list of real estate developers is long and exhaustive, ranging from infrastructure/industry status for the sector, to restructuring of their bank loans, to higher tax incentives for themselves and homebuyers. The importance given to the housing sector in the last few budgets has definitely raised the hopes of the industry that their wish list will be considered favourably.
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In my opinion, the government needs to quickly address the two legacy issues plaguing the growth of the sector -- stalled projects and unsold housing units. For the completion of stuck projects, a start has already been made by setting up the Rs 25,000 crore stress fund named SWAMIH. Since the fund has already been committed to the completion of various projects across the country, there is a need to enhance the size of this fund to at least Rs 1 lakh crore. Secondly, to regain the consumers’ trust in the real estate market, it is imperative that the stalled projects get completed with the government’s intervention.
The real estate sector, which is the second biggest employment generator in the country, cannot achieve its past levels of success without regaining the complete trust of its consumers. Secondly, the government should consider new measures to boost housing demand for both buying and renting purposes. Our research points out that there are huge stocks of unsold inventories, amounting to nearly 7 lakh units across the eight major cities in the country. While it will take multiple years to sell these units, stocks can be offloaded quickly with some incentives from the Centre and the state governments.
Deduction on the interest paid on home loans should be enhanced substantially from the current Rs 2 lakh, for a short period. A separate section under the income tax exemptions should be created for the repayment of the principal amount, instead of the current provision of clubbing it with various exemptions allowed under section 80C. During the COVID-19 pandemic, the concept of home ownership has gained momentum. Increased tax incentives will boost affordability and encourage fence-sitters to take the plunge and purchase their dream homes.
Solving the twin problems of unsold inventory and stalled projects in the upcoming Budget on February 1, 2022, could go a long way in terms of the long-term growth of the real estate sector as well as the 200 affiliated industries. Already, housing sales strongly bounced back in 2021 despite the second wave of the COVID-19 pandemic. According to market reports, sales grew anywhere between 20-70 percent last year, across the major 7-8 cities, to almost reach the pre-COVID levels. Higher economic growth, historical low interest rates on home loans, pent-up demand, reduction in stamp duty by a few states including Maharashtra, and builders’ discounts, were some of the positive factors that led to the surge in housing demand.
In a healthy sign for India's residential market, housing demand has been moving toward reputed brands and trusted builders, with a marked preference for properties with generous space and features. This demand has largely been led by end-users as compared to investors, unlike a couple of years ago. Builders too have largely switched to tie-ups with landlords for land parcels instead of buying them outright, which in turn, has helped them keep prices stable. These factors, according to IBEF, should keep the sector on track to reach $1 trillion market size by 2030 and contribute 13% to India's gross domestic product.
The upcoming Budget is expected to act as a catalyst to drive investment into the real estate sector, which has been successful in staying afloat despite suffering one shock after another since 2016 in the form of demonetisation, RERA, GST, the NBFCs crisis and now, the pandemic.
Housing demand did bounce back strongly after the first as well as the second wave of the COVID-19 pandemic, driven mainly by the historical low interest rates on home loans. However, the sector is still plagued by two perennial problems -- unsold inventories and stalled projects. Additionally, the third wave fuelled by the Omicron variant of the coronavirus has emerged as a challenge for the sector and the economy.
To deal with these legacy issues and also this new challenge, the real estate sector needs all the support it can get, in the upcoming Budget. Apart from hiking the corpus of the government-backed stress fund SWAMIH to at least Rs 1 lakh crore, the government should give more tax incentives for both principal and interest paid on home loans. The Credit-Linked Subsidy Scheme (CLSS) should be extended for the EWS-LIG and be reintroduced for the MIG segment.
The government has taken some bold measures to promote rental housing like the framing of the Model Tenancy Act and the launch of the Affordable Rental Housing Complexes. Tax sops should be provided to boost both, supply and demand of rental housing. Rental yields are lower in residential properties compared with office assets. This can be compensated through tax incentives to developers and property buyers.
-- The author, Dhruv Agarwala, is Group CEO, Housing.com, Makaan.com and Proptiger.com.
(Edited by : Vijay Anand)
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