The real estate sector in India has started settling to the multiple teething problems posed by various regulatory reforms. However, there are still many challenges that are impeding real estate growth in the country. The industry is pinning huge hopes from the upcoming Budget 2019-20 to address these problems.
With the implementation of key policy reforms such as RERA and GST, the year gone by turned out to be an inflexion point for real estate and started to weed out the inefficiencies from the sector, leading to the era of transparency and accountability. As the industry is coming to terms with the unprecedented reforms, it will be compelling to see how the government will reflect on fueling growth in the sector through Interim Budget 2019-20.
Though the real estate market is continuing to evolve into a more dynamic space and getting accustomed to various compliances, there are still many challenges that are hindering its growth.
- Industry status to real estate sector: Allotment of “industry status” to the real estate sector has been a long-standing demand of industry stakeholders. If given, an industry status will aid realtors in getting low-cost loans, which will drastically bring down the cost of project development and will eventually reduce the final cost of home purchase for buyers. Overall, industry status is well-deserved and long-due for the sector that is the second largest employer in the country and supports more than 130 ancillary industries across the nation.
- GST reduction: The government is mulling to reduce GST from 12 percent to five percent on under-construction homes. The change will make housing affordable on paper, but practically it will increase the construction cost as new regulations do not allow developers to take input credits which are eventually added to the final price of the house. While the government is planning to reduce GST up to five percent, they should also reduce GST on capital goods and input services used for the construction of flats. For instance, the construction services offered by developers attract 18 percent tax and cement that draws 28 percent GST, which immensely contributes towards the cost of the project. Reducing these will aid in making housing affordable.
- Increase in the exemption of interest on home loan limit: To support millions of first-time homebuyers, the government should increase the limit of tax reduction on interest on housing loans up to Rs 5 lakh from the present limit of Rs 1.5 lakh per annum. A decent, affordable apartment in urban areas like National Capital Region (NCR) costs around at least Rs 50 lakh and above, and keeping in mind that an average rate of interest on home loan is anywhere between nine percent and 10 percent, this step is significant for fulfilling the Prime Minister’s dream of Housing for all by 2022.
- Single window clearance for real estate projects: To increase the efficiency and timely delivery of housing projects, a single window clearance mechanism is the prerequisite for the sector's growth. It is expected that the government will make provisions for single window clearance in the upcoming budget to resolve the issues pertinent to project approvals. At present, the multiple level permissions and approvals that developers are required to secure takes anywhere from 18 months to 36 months before beginning any project. This defers the overall project deliveries. Single window clearances, as envisaged, would not only cut down the project delay but would also impact the construction costs. In an after RERA scenario where developers cannot afford any further delay in the project delivery, lack of provisions to facilitate smooth clearances and approvals from government authorities is acting as an obstacle in the execution process.
- Incentivise green building projects: To meet the rising demand for housing, developers are initiating new projects, but the construction of these new projects will significantly contribute towards India's deteriorating urban environment. Therefore, it is essential that the government provides incentives on green building projects.The marginally higher cost of construction of green buildings has kept a majority of developers away from investing in green buildings. Hence, it is expected that the government will encourage developers with higher incentives in terms of FSI or some degree of tax exemption to encourage them to adopt green building technologies.
Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. 99acres does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.