By Santhosh Kumar, CEO – Operations, JLL India
For the common man of India, the dream to own a house will soon turn into reality with the Narendra Modi-led NDA government taking charge. Issues such as affordability of real estate, delayed construction projects, delays due to litigations surrounding real estate projects, etc. impacted developers as well as consumers.
The new government promises to aggressively promote affordable housing. Property is once again going to become the most popular investment option, as there will be significant appreciation in real estate prices on the heels of higher demand in the coming years. With the easing of regulations, developers are expected to speed up the construction process, providing relief to buyers who have already invested.
The big names of the Indian industry have welcomed the new government with a hope that it will bring the economy back on track and raise the currently plummeting GDP to 8-9% in the coming fiscal. The new government at the centre is expected to infuse life in the existing policy paralysis in the country by removing the major bottlenecks that are deterring growth.
Revitalized Funding Flow
FDI in the Indian real estate sector is expected to get a lift, resulting in amplification of fund flows and strengthening of the battered Indian rupee. With a clear majority triumph, the incumbent government will enjoy unwavering stability at the centre, which will in turn encourage investors’ sentiments with regards to the real estate market. Global investors are now markedly optimistic about the Indian economy, which is expected to witness more than 100% increase in foreign investment inflows, both via FDIs and FIIs, to above $60 billion in the current financial year, as compared to $29 billion during FY 2013-14.
The urban development ministry is expected to repeal the existing restrictions on real estate firms by allowing foreign investment up to 49%, free of all conditions. This will help the real estate sector to raise foreign capital at competitive rates and reduce stakeholder dependency on the beleaguered local financial institutions. Foreign capital for urban renewal and slum redevelopment projects is also expected to see major relaxations.
Boost To The Retail Sector
The retail sector is also expecting significantly enhanced domestic as well as foreign investments. India’s large but capital-constrained retailers have welcomed the liberalised rules that are expected to bring funding and new technologies into the sector. As a result, demand for retail space is going to increase enormously as more and more domestic retailers plunge in to reap the benefits of the new policies.
Fast-Tracked Infrastructure
The completion of large infrastructure projects like the DMIC (Delhi Mumbai Industrial Corridor) and the DFC (Dedicated Freight Corridor) will be expedited. This, in turn, would mean development of many new cities across the belt of these projects. These massive on-going infrastructure projects will lead to a huge demand for warehouses, thereby giving a significant boost to warehousing and logistics-related real estate demand. Once completed, the growth of real estate at India’s hinterlands that will be connected by these corridors will be exponential.
In terms of real estate, some of the urgent steps that the NDA government needs to take with immediate effect are:
· Reversal of the land acquisition act
· Clearance of pending receivables to the private sector via fast-tracked bureaucratic decision-making
· Provision of fiscal stimuli to improve industrial growth
· Creation of investment-friendly real estate market via lowered interest rates and increased employment generation.
Further, the real estate market expects the government and the RBI to be on the same page with respect to checking inflation and curtailing of interest rates, so as to revive the tumbling demand for property in India.
Developers’ Hopes
India’s developers are hoping that:
· The new government will expedite the process of granting regulatory approvals. The chronic lag in this regard has been a major obstacle for most of their projects
· The Real Estate Development Regulation & Development bill, which has been lingering for quite some time now, will be passed
· The new government will ease land acquisition parameters so that availability of land is no longer a major constraint. Difficulties in acquiring land due to the current policies have led to vastly escalated real estate cost.
With the slowdown in home sales, developers have been battling a severe liquidity crunch and a rise in their inventory levels. Many prospective buyers have abstained from investing in property because of market negativity, an unstable government at the centre, high inflation, high interest rates on home loans, etc.
Now, with the stock market rocketing and the Indian rupee appreciating, these buyers are expected to snap into action. Increased sales, along with availability of funds from both domestic and foreign investors, will bring significant respite to developers and finally bring an end to the liquidity crunch that they have been facing.
The Hope Mantra
The three major promises made by the NDA in their manifesto that have direct pertinence to the real estate sector are:
1. The development of 100 new cities
2. Putting a new land use policy in place
3. Planning for low-cost housing
Modi’s pledge to implement an affordable housing policy and thereby provide homes to every Indian family presents a $150 billion business opportunity to the sector. The real estate industry now also has real hopes of being granted the coveted industry status, which will further ease fund flows.
Meanwhile, consumers are optimistic about the impact that the new government will have on real estate pricing, and expect a reduction in home loans, the implementation of the proposed GST framework and the implied tax benefits to buyers.
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