The real estate sector is facing a major challenge due to the lockdown. The problems started four years ago with demonetisation, which sucked a lot of liquidity out of the system; however, it introduced a lot of transparency in the dealings. The government then introduced GST to bring further reforms in the sector. Though the government reduced taxes from the earlier 12% to 5% now, it let go of the input credit, impacting the real estate sector further.
The NBFC crises led to tightening of lending norms and created a major liquidity issue, aggravating the situation further. And when we thought the worst is over and the sector would see revival due to government measures, the Covid-19 pandemic and the lockdown hit it the most, bringing operations to a grinding halt.
The sector was ailing even before the pandemic when economic growth was cratering. Now, the pandemic has added woes of migrant labour scarcity topping liquidity deficit, demand stagnation and geopolitical uncertainty looming over. Beyond immediate tactical and operational concerns of Covid-19 management, industry is facing obstacles unlike any since the Global Financial Crisis; adding to the challenge is shortage of raw materials and supply chain disruption.
The fiscal stimulus announced by the FM and liquidity measures by RBI were steps in the right direction, but as long-term measures the impact on the ground will be the time to watch. Like the Rs 30,000 crore special liquidity schemes made in both primary and secondary market transactions in investment-grade debt papers of NBFCs/HFCs/MFIs. This would help introduce liquidity in the housing sector. The six-month extension for all RERA-registered projects on or after March 25, 2020, will also save a lot of real estate developers from defaulting. Reduction in CRR, repo rate and reverse repo rate will nudge banks to lend further down to the industry, which will help infuse working capital to the business to resurrect. Extending PMAY credit-linked subsidy scheme will induce more fence-sitters to make buying and the announcement of the Affordable Rental Housing Complex scheme will open up new business opportunities. The financial package to the marginalised is a step in the right direction, so is deferment of bank loans. But these initiatives unfortunately are still not enough to revive the real estate sector. Industry’s long-pending demand of ‘one-time rollover’ for debt restructuring is crucial to infuse liquidity in the system, and we are looking forward to the announcement soon.
Indian economy is consumption-driven and resumption of purchase of houses will rekindle real estate, which, in turn, reboots 300-odd allied industries with its rippling effect. This will also lead to sustaining more than 5 crore jobs—the real estate sector being the second-largest employment contributor after agriculture contributes almost 8% to India’s GDP. Individual tax benefits are accrued long with expectation of income tax deduction limit to be increased from the current Rs 2 lakh to at least Rs 5 lakh, benefiting lakhs of taxpayers. This will induce and incentivise homebuyers to buy property. Industry has also pegged demand for reduction in other statutory levies like concession in stamp duties, reduction in ready reckoner or circle rates, slashing GST to zero which will act as a demand factors prompting to make a purchase and increase consumption.
If the government introduces some unprecedented periodic measures at this stage, demand in the real estate sector may see a jump—this being the best time to buy with home loan interest the lowest, availability of choice of inventory, sweetener deals, government subsidy and other incentives. The government can ensure home loan rates be reduced to around 5% mark at least for some time, from the current 7-10%. This would make borrowing more attractive to the salaried class against the backdrop of job insecurity and uncertainty. In 2004, the demand for houses had gone up as loans were available at an attractive interest rate and borrowers had a lower EMI burden. Any fiscal measures will boost volume growth and bring back revenue to the state.
The real estate sector is the backbone of the economy; it holds huge potential to bounce back and put economic growth back on track, but it needs a bit of handholding from the government.
(Source: Financial Express)