The real estate industry is in need of stimulus as it has been ailing for quite some time. The industry has been starved of capital and has no alternative but to use high-cost capital.
On the regulatory front, delays in approvals continue to affect projects. And rising cost of construction is leading to lower returns.
Affordability has taken its toll, which is reflected in lower sales across regions. Residential demand in Mumbai and National Capital Region is slowing, while other metros like Chennai, Pune and Bangalore are being affected by declining affordability.
The end-user lacks the confidence to take a buying decision in the above scenario. The industry has been hoping for succour from the government in terms of stimulus through policy measures and the Budget.
The government has laid down its vision for housing under various initiatives like 'Housing for all', smart cities project and providing affordable housing. The Budget needs to clearly spell out steps to provide long-term sources of capital and availability of cheaper capital to achieve the goals set.
Demand for affordable housing segment typically lies in 60-80 sq metres (less than Rs 50 lakh) category. In order to provide incentives to real estate developers to undertake projects for this segment, tax holidays should be provided for such projects to make them attractive.
Unlocking of capital from the commercial real estate sector will provide funds to developers who have built such assets by borrowing from banks.
If the Budget provides tax incentives for Real Estate Investment Trusts (REITs), it could lead to more flow of foreign investment, free up bank funds and provide avenues for domestic investors to invest in debt returns from income yielding assets.
The Budget should also give a clear roadmap for availability of capital to the real estate industry as the availability of foreign capital to the sector has been subject to various conditions.
The issue of governance and transparency in the sector has improved significantly in light of various regulations. Easing of the FDI regime in the sector will attract capital that matches the risk profile of projects and will bring in accountability in the sector. Offshore capital both in form of debt and equity should be allowed in the sector, except prohibiting investment in land trading.
One of the most awaited decisions from the Budget session is the Real Estate Regulatory Bill. The bill would bring in transparency into the system, wipe out difficulties in raising capital from banks and other financial institutions, and attract higher foreign investments.
The setting up of regulators like Trai, Irda, Sebi and CERC has helped the growth and protection of interests of various stakeholders of the industry. The setting of the real estate regulatory authority will bring the much needed reforms in the sector, to improve governance and execution that will help in boosting the confidence of the end customer.
Development and growth of SEZs is important for providing employment opportunities and export growth. To ensure success of SEZs, stable tax regimes with clear rules are required. The Budget is expected to address the issue of taxation for the SEZs as many projects are bring withdrawn due to change in taxation policies.
(The author is MD and CEO, ASK Group)