The real estate sector saw various reforms unfold by way of the Union Budget of 2024-25, such as, expansion of the Pradhan Mantri Awas Yojana, focus on development of industrial parks and corridors, reduction of stamp duty, digitisation of land records, amongst other reforms.
However, some recurring issues and demands of the real estate sector continued to remain unaddressed, whilst some newer demands based on changing global trends emerged in the last year.
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One such recurring demand is the grant of ‘industry’ status to the real estate sector. Such distinctive identification would foster policies and schemes that cater specifically to the needs of the real estate sector, such as availability of funding for developers at comparatively lower interest rates and overall regulation of the sector.
The Government should also consider flexibility in the current policy for external commercial borrowing to enable real estate developers to access funding at a cheaper rate to acquire land, which would provide construction and development at reasonable prices to the end-users.
For any real estate project, developers are required to seek numerous no-objection certificates/approvals/permission from various central and state level authorities, such as NHAI, AAI, fire departments, pollution control boards, etc. Obtaining such a catena of no-objection certificates/approvals/permission continues to cause delays and hurdles in the development of the project. Implementing a single window clearance system would allow developers access to a unified platform for availing all the requisite no-objection certificates/approvals/permission and is expected to reduce the delays in development of a project considerably. Additionally, such a system would also promote transparency, as all the information in respect of the construction and development would be available at a single portal or website.
The later year of 2024 saw a dip in the sales in the residential segment, which has been majorly attributed to rising property costs, amongst other reasons. The developers are therefore expecting that the Budget would introduce reforms to address this issue and revive the housing segment.
Affordability of properties continues to plague consumers, more particularly in metro cities where the concepts of ‘affordable housing’ are dynamic. Currently, any housing unit that is priced below Rupees 45 Lakhs and has 60-90 square meters carpet area (depending on whether the property is located in a metropolitan area or non-metropolitan area) is considered in the ‘affordable housing’ criteria for the purposes of GST, and these values remain unchanged since 2017 despite the fact that real estate prices have been constantly on the rise in the last 4-5 years due to high cost of raw material used in construction and development of such projects.
It is imperative that the above-mentioned caps be revised to keep in sync with the market realities. Additionally, it would also be worthwhile to consider creation of multiple slabs/categories based on the categorisation of the city, i.e. Tier I, Tier II, Tier III, rather than limiting to just metropolitan and non-metropolitan areas as the cost will vary for development of projects in respective tiers.
Another measure that can help in reviving the segment is reducing interest rate on home loans, which would in turn facilitate more consumers to gravitate towards purchasing properties.
Further, reducing the construction and development cost, by granting tax reliefs on the supply side of construction and by granting lease to the developers (on long-term basis), of centrally controlled land held by Indian Railways, Defence, PSUs, universities and such other Government Companies/Organisations, which is not being utilized for current or future expansion. This would enable the end-use consumers to own properties on comparatively affordable prices, whilst also ensuring a steady revenue in the form of rentals to the above-mentioned Government Companies/Organisations.
Furthermore, in the Budget 2024-25, the Government had announced a rental housing scheme for industrial workers in order to improve their living conditions and provide them with housing facilities at affordable prices. This scheme could be expanded further for the people of lower economic strata, which would also attract investment opportunities and would make housing affordable for people residing in Tier-I and Tier-II cities and would solve the issue of housing to a large extent for people of the lower income strata.
India is on the rise towards becoming one of the more preferred places for setting up GCCs, due to its competitive real estate and operational cost, especially in Tier-II and Tier-III cities, and presence of institutional landlords who are in the business of setting up high-quality office spaces that cater to the requirements of the Multi-National Companies.
In order to incentivise more developers to enter into the market for office spaces, the Government could consider introducing reforms that rationalise the income tax liability on rental income, since in most cases, the actual rental income is significantly less than the annual value of the property.
The Government (both Central and State) should promote the development of GCCs on pan-India basis by incentivising such development in various States, which will attract Foreign Direct Investments, generate more employment, and would also invite more Multi-National Companies in India.
Considering the above recommendations by the Government would give a boost to the real estate sector which in turn would also boost the economy, generate employment, and foster industries involved in the development of the real estate sector.
This article was originally published in Financial Express on 29 January 2025 Written by: Mrinal Kumar, Partner. Click here for original article
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