By Vinod Behl
With projects worth over $100 billion stalled or abandoned due to poor sentiments, the realty industry in India expects better days ahead, riding on the mood generated by the political stability expected in the Prime Minister Narendra Modi government. There are strong indications of that as well, with the realty index of the Bombay Stock Exchange (BSE) rising almost 45 percent in May alone.
Real estate is a sentiment-driven business. In recent times, it has been reeling under low investor sentiment. The hope of a stable government, ahead of Modi’s massive win, had already started turning the sentiments positive.
New housing units witnessed a 43-percent increase in the first quarter of this year. In March, just before the national elections, foreign investment inflows more than doubled to $3.53 billion, up from $1.52 billion in the same month last year.
This business optimism, reflected in the recent Grant Thorton report, is already having its desired impact. ICICI Bank has set the ball rolling by reducing home loan rates. One expects more such offers like the one from a leading Bangalore developer who has has come up with a unique offer to reduce the buyers’ home loan interest burden by 3.25-3.50 percent with the view to cut the overall cost of home ownership.
This positive sentiment got strengthened with Modi’s win. Months before the elections, irked by perceived policy paralysis of the previous government, Credai, the apex body of real estate developers, had put its weight behind a Modi-led government. Today, the key task before the new government is to improve the investment climate.
Already, the market regulator has got activated to ensure early take-off of REITs which offer an alternate, transparent and safe investment vehicle for retail investors, giving much hope to the cash-starved real estate sector. Moreover, RBI is hinting at easing norms for infrastructure funding.
Also, the industry ministry favours tweaking foreign equity norms to facilitate overseas capital in farmland. for a further boost, the new government is also expected to liberalise norms to allow insurance and pension funds to invest in real estate, besides reducing the capital investment limit and lock-in period.
The government will also on priority address the issue of industry status to the realty sector and strenthen the regulatory mechanism to pave way for easy access to cheap funding and boosting investment through transparent and safe property transactions.
Today, projects worth Rs.6.26 trillion have been shelved, abandoned or stalled as per leading think tank Centre for Monitoring Indian Economy (CMIE). In the days ahead, implementation and fast-tracking mega infrastructure projects will be the key strategy to revive growth.
It is expected of the new government to implement a single-window clearance system, as suggested by leading industry bodies like Ficci. Since land acquisition is also a major hurdle for projects to take off, new legislation is needed as the one in operation has made acquisition more difficult, time consuming and expensive.
It is worth noting that Gujarat has been named as the best state for simplified land acquisition norms. The Delhi-Mumbai industrial coridoor project has already tried with success the land-pooling model in the prime minister’s home state. Further, the Gujarat model of using remote-sensing and e-governance can also come in handy for monitoring.
As the Bharatiya Janata Party (BJP) manifesto promises integrated habitat development and building 100 new cities, the new government may also replicate the Gujarat model of urban development, ensuring planned development of semi-urban areas as vibrant cities.
The new government will also like to realise its goal of housing for all by 2022. For this, affordable housing has to be promoted in a big way by extending incentives to developers in the form of low-cost funds, liberal use of floor area, tax benefits and lower interest rates for housing. All eyes, therefore, are on the ucoming fiscal budget.
At the same time, realty being state subject, the real challenge is to take the states along on the reform path. Different states have different set of rules for development planning, project approvals, floor use norms and regulation. But with policy-making and decision-taking expected to be put on the fast track by a stable government, the real estate and infrastructure sectors should be back on the high growth path soon.