ANN| 27 Jan 2021| New Delhi
From eagerly awaiting ‘industry status’and single-window clearances─the real estate sector has myriad of expectations from the Union Budget 2021 to ease out its liquidity challenges
The real estate sector is looking forward to many corrective measures and ground breaking announcements from the upcoming Union Budget 2021. Considering the strength and sway of the real estate sector, which exists as the second-largest employment generator in India, impacting over 250+ allied industries – government support is not just crucial but indispensable during this time. While the real estate sector was already reeling under pressure due to liquidity crunch, the implications of COVID-19 have only exacerbated the situation.The upcoming budget, therefore, needs to focus on measures to accelerate recovery post-covid.
The pressing need for an ‘industry status’
In a bid to reduce cost of capital and make funds more accessible, the real-estate industry is on the lookout for a long-pending ‘industry status.’The lack of financial institution benefits, low interest rates, and easy approval processes have been hindering growth in the construction business, which exists as the second largest industry after agriculture in India. The procurement of an industry status, therefore, would allow the sector to get loans easily with lower interest rates, attract equity investment and enable big investors to be financing partners, among numerous other benefits.
In fact, the same status had been conferred to the affordable housing sector in 2018. Sectors that have previously been conferred with this status are now privy to various legal and operational benefits. This step can therefore act as a big impetus for the real-estate industry.
In order to ensure timely completion of projects through speedy clearances and quick approvals, single-window clearance system is another key areawherein government needs to take action.
This step will not only expedite project execution but will also help to manage the cost of construction. Broadly, developers have to seek more than 70 clearances. These may include ownership certificate, layout approval, NHAI permit, approval from multiple departments such as water, electricity, etc. ─all of it which takes around 1-2 years to settle, thereby severely stretching the construction cycle.Another measure that requires government’s attention is on-time restructuring of developer funding for projects where the money is not diverted, in order to restart construction.
Reinforcing erstwhile positives
The last Union Budget presented various positive imperatives such as an additional corpus of INR 1.5 lakh tax benefit on interest paid on affordable housing loans, reduction in GST rates from 12% to 5% for residential apartments and 1% for EWS/LIG category, and a fresh stimulus to the affordable housing vision or Pradhan Mantri Awas Yojana (PMAY) through an extension of home loan subsidy and increased outlay.
These measures have significantly impacted the real estate sector in a positive manner by increasing demand and recuperating consumer confidence. Further reinforcement, extension, and reform within these imperatives will help impel growth in the real estate sector, benefiting both developers and home buyers.
Other expectations of the industry from the Union Budget 2021 include reforms and consumption boosters within the banking segment to ensure easy credit off-take to overcome liquidity challenges, providing growth targets to all PSU Banks for developer and individual home loans, with a special focus on refinancing NBFC loans subject to norms of debt/equity at the project level. Lastly, another key focus area that needs to be prioritised by the government is that of 8% GST with input tax credit. These measures will significantly ease the prevailing financial crunch and will be critical is rejuvenating the sector.
Having said that, the biggest stumbling block for real estate developers today is the cost of capital. Any and every reform that contributes towards a reduction in the cost of capital would positively influence the industry, ensuring the economy procures the recovery curve in the post-covid era.
Manpreet Singh Chadha, Chairman, Wave Group