Real estate needs stimulus

Realtors feel that the government should introduce some incentives to inject energy into the industry .

Bhaskar Nagendrappa

The Indian real-estate industry, which is expected to breach the $1-trillion mark by the end of this decade (2030) and which is likely to receive more than $8 billion in capital infusion by the end of financial year 2022, is going through one of its toughest phases, confronted with one life-threatening crisis after another. The series of acid tests faced by the industry includes demonetization, GST (Goods and Services Taxes) and RERA (Real Estate Regulatory Authority), which have put a tight squeeze on funding, brought in more transparent taxation and imposed very stringent buyer-friendly measures to bring in a semblance of order in the industry. While these measures are welcome and help in carrying out sweeping changes, they, at the same time, have had a huge impact on the industry as a whole.

A GRINDING HALT

In March 2020 came the pandemic. This literally brought the construction activity and the industry into a grinding halt. A complete stop never experienced in recent memory. The big question now is: How do we revive the industry and bring it back on the rails? Before we look at bigger challenges along the recovery path, let’s look at how a rise in input costs of construction material has put a big strain on construction activities across all segments of housing.

On a broader level, the real estate sector is made up of four large sub-groups: Residential housing, retail, hospitality and commercial. Thanks to a booming corporate environment, demand for office space in both urban clusters and semi-urban areas has seen an appreciable increase. It is said that the real estate sector is the second-highest employment generator only after the agriculture sector. The real-estate sector is likely to receive huge amounts of non-resident Indian (NRI) investments. It has been established by now, Bengaluru -- the cradle of science and research and a go-to address for most innovation companies – is leading the chart as the most-favoured investment destination for NRIs. Other cities which rank high up on the list are Hyderabad, Chennai, Pune, Noida, Chandigarh, Gurugram, Delhi and Dehradun.

HIGH COST PINCHING INDUSTRY

While investments do kick the industry into a higher gear, we cannot lose sight of the fact that the construction cost has gone up by a whopping 35% and the labour cost by nearly 25% in the past one year. It is true that the pandemic has led to a spurt in demand for own housing. The existing houses are looking to expand their accommodation because there’s a need for making more space due to the work from home. This calls for modification or alteration to the existing structure. There is no denying that real estate is a safe and inflation-proof investment option, but there are other inhibiting factors which are coming in the way of a robust revival.

According to estimates, key ingredients in the industry have seen a shocking rise in price in the past one year due to limited supply of raw material. For instance, the cost of steel has seen a jawdropping 58% rise in just one year, electric cables, PVC and GI pipes have become costlier by 40% to 50%, cement is dearer by 35%, tiles are now 25% costlier, and the price of sanitary ware has gone up by not less than 15%. After RERA came into existence in the country, developers are restrained from doing a review of the price agreement with buyers after signing the agreement at the start of the project. Given the volatility of the economy and the long shadow cast by Covid-19, the industry is expecting the government to announce a slew of incentives.

TIME TO ACT IS NOW

As we know, the real-estate sector, along with construction activities, has already employed over 52 million workers as of 2021. Estimates project that at least 15 more million jobs are expected to be generated over the next five years. A booming real estate means more contribution to the country’s GDP. Asia accounted for nearly a third of the global GDP increase in the past few years.

Therefore, we urge the government to introduce a bunch of incentives to inject stimulus into the industry. This one-time measure will go a long way in ensuring that both developers and buyers benefit in the long term. Time to act is now.

(The writer is the president of CREDAI, Bengaluru.)