To take your ideas to Policymakers, Join the Campaign of #PolicyPulse Write to feedback@policypulse.com

Real estate can lead to real growth

This sector needs not only greater attention by powers-that-be but also a sharply focused approach

Sanjeev Sinha
Publish Date: Sep 12 2016 4:23PM | Updated Date: Sep 12 2016 4:23PM

Real estate can lead to real growth

The key to boost the economy is held by real estate and so is the case with employment generation in any developing country. And, thus, this sector needs not only greater attention by powers-that-be but also a sharply focused approach that can remove bureaucratic and other bottlenecks to lead the way for the revival of real estate

Historically, the United States has been the biggest contributor to global growth, and a contraction in the American economy has been the catalyst that tipped the world into the financial crisis of 2007-08. But not many people are aware that it was the real estate bubble which brought down the US economy,and subsequently the global economy as a whole --the ripples of which are still being felt across theglobe.

 
Otherwise also real estate has been a major contributor to the growth of world economy, which is true in case of India also. The importance of sector can be gauged from the fact that real estate in India is the second largest employer next only to agriculture, and growth in the sector has a direct impact on over 250 ancillary industries such as steel, cement and paints, among others. A study by rating agency ICRA shows that the construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy.
 
Not only this, if given the right push, “the real estate and construction sector is expected to be the third largest globally by 2030, contributing over 15 percent to the Indian GDP, and may emerge as the largest employer in India providing employment opportunities to over 75 million people,” according to a recent report by KPMG India. Also, with every sixth person getting urbanised globally being an Indian, the sector holds significant opportunity for both global and domestic companies engaged across the value chain (design, development, construction, finance etc).
 
Anuj Puri, Chairman and Country Head, JLL India, says, “Real estate is a major employment generator for India, and the residential property sector alone accounts for about 5-6 percent to thecountry’s GDP. Moreover, it is closely interlinked with many other ancillary industries which also depend on its robustness. Also, real estate caters to very important social and economic needs via the housing, office spaces and retail sectors.”
 
However, despite the real estate sector being the backbone of the Indian economy and also a major contributor to its economic growth, not much has been done to revive the sector which has been going through tough times for a long time. The sector continues to remain troubled with issues of high unsold inventory, delayed delivery of projects and financial stress on developers, feel industry experts.
 
Thankfully, the Modi Government has taken some proactive steps to revive the sector. For instance, in terms of proactive policies and a hard focus on infrastructure and housing, the incumbent Government has done a lot for the real estate sector.
 
in two years. “It has also made the sector more attractive to foreign investments, and we may even see the first REITs or Real Estate Investment Trusts being listed in the next 12-18 months. The deployment of Goods and Services Tax from the next financial year will also have a very positive impact, and RERA or Real Estate Regulatory Authority is all set to render the industry more transparent to further add to its attractiveness for foreign direct investments,” informs Puri.
Nevertheless, experts say, factors such as inflation are still a major concern, as are some remnant regulatory roadblocks, and there is definitely much more to be done.
 
For example, every time a realty project gets delayed or something else happens, it is the developers who get the blame. Industry experts, however, feel that many of the reported occurrences of project delays are in fact not because of malpractice or indolence on the part of developers, but the result of the flawed regulatory environment that still surrounds the real estate sector. “While there is no doubt that unscrupulous developers wilfully slow down the pace of construction if they are not generating the desired sales, it is a mistake to paint the whole industry with the same brush for malpractices. One needs to factor in that delays are often the result of the concerned authorities not granting approvals on time, and also the Gordian knot of bureaucratic red tape that developers need to unravel every time they seek approvals for their projects,” says Puri.
 
It is shocking to know that more than 50 approvals from the Government and various authorities are needed for the launch of a real estate project in India. The approval process, that includes getting the NoC and licences, takes about 18 months to 36 months to complete and if any project gets stuck at some point, then it causes further delays. On the other hand, a single-window clearance system, if implemented, will not only prevent unnecessary delays in the delivery of a project, but also bring down the prices of houses by at least 15 to 20 percent, making them more affordable.
 
Nevertheless, experts say, factors such as inflation are still a major concern, as are some remnant regulatory roadblocks, and there is definitely much more to be done. For example, every time a realty project gets delayed or something else happens, it is the developers who get the blame. Industry experts, however, feel that many of the reported occurrences of project delays are in fact not because of malpractice or indolence on the part of developers, but the result of the flawed regulatory environment that still surrounds the real estate sector. “While there is no doubt that unscrupulous developers wilfully slow down the pace of construction if they are not generating the desired sales, it is a mistake to paint the whole industry with the same brush for malpractices. One needs to factor in that delays are often the result of the concerned authorities not granting approvals on time, and also the Gordian knot of bureaucratic red tape that developers need to unravel every time they seek approvals for their projects,” says Puri.
 
It is shocking to know that more than 50 approvals from the Government and various authorities are needed for the launch of a real estate project in India. The approval process, that includes getting the NoC and licences, takes about 18 months to 36 months to complete and if any project gets stuck at some point, then it causes further delays. On the other hand, a single-window clearance system, if implemented, will not only prevent unnecessary delays in the delivery of a project, but also bring down the prices of houses by at least 15 to 20 percent, making them more affordable.
 
“Although the Government has been makingefforts to revive the real estate market, as developers we think that certain amendments need to be made in the policies of the Government such as allowing single window clearances to developers for their projects. This will speed up the construction process, leading to lesser construction costs, and thus providing affordable property to the buyers. Also, the circle rates need to be reconsidered, the way it has been done in Gurugram. Keeping in view the fact that the sector has been facing a sluggish market ever since the economic slowdown in the last decade, it will get hugely benefited with such a progressiv e step,” says Ravish Kapoor, Director, Elan Group.
 
Besides, in order to gain better yield from REITs and to make the investment vehicle more profitable, the Government should also look at rationalising stamp duty charges at the State level.
 
Similarly, according infrastructure status to the sector, a long-standing demand of the real estate developers, will help developers avail finances at cheaper rates from financial institutions. The move will also help simplify approval process and increase transparency.
 
Some developers also believe that only taking initiatives to revive the sector is not enough and going ahead, the Government also needs to govern the projects closely to ensure their timely implementation and execution. “Though the Government is really pushing hard to complete various infrastructure projects such as highways, metro projects, flyovers, underpasses etc, we are now looking forward for their timely completion. For example, NPR (Northern Peripheral Road), which is one of the most promising and upcoming locations both for residential and commercial development, needs to be pushed and completed on top priority,” says Anupam Varshney, head Sales and Marketing, Vatika Limited.
 
Whatever be the case, experts believe that while the Modi Government is trying hard to provide the requisite stability to the economy, it now needs to be more focused on retrieving the sluggish real estate, which is facing a severe financial crunch for many years. The real estate sector, encompassing the housing and construction activity, has in fact a substantial potential to kick-start the economy on account of the significant backward and forward linkages with crucial and critical sectors of the economy.