Real estate sector in India is expected to grow at a CAGR of 15%, from $60 billion in 2010 to $1,000 billion in 2030. It is expected to contribute 13% of the country’s GDP by 2025.
As per a 2022 report by valuation and consulting firm, RBSA Advisors, the residential real estate sector attained equilibrium in 2021 despite the 2nd wave of Covid-19. Residential investment in India (averaging roughly 3-5% of GDP) contributes to 80% of the real estate market.
As the sector caters to different segments of the society, the government’s focus on affordable housing is expected to further provide an impetus to this segment.
The industry has made some suggestions that they hope would provide a sustained growth to the sector.
For home buyers, lower house prices and low home loan interest rates are some of the key demands.
Himanshu Chaturvedi, chief strategy and growth officer, Tata Projects Ltd., said that the Union Finance Minister should consider several macro-economic factors in the upcoming Budget.
Regarding the construction sector, during Covid period, the Government had come out with several provisions for improving the liquidity of the construction sector by reducing performance bank guarantees, progressive release of retention amounts etc..
Chaturvedi urged that this helped the sector significantly and the sectoral activity during the period was higher than pre-covid years. These provisions have been extended in the past. “Would request that the Government make these changes permanent for all future projects so that the sector continues to perform to its full potential.”
Chaturvedi added the impact of the pandemic on the global economy is still playing out. Almost all Central Banks are tightening the monetary policy to combat inflation. While prices for many commodities have fallen from their peak earlier this year - they continue to be at levels higher than pre-Covid period.
“This has led to expanded working capital borrowing, rather than to fund capital investment. “This year, we expect the Government to announce a capital expenditure plan of Rs 10 lakh crore as against Rs 7.5 lakh crores in Budget 2022," Chaturvedi said.
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Chaturvedi added that with so much focus on infrastructure investment, close monitoring is necessary for getting desired outcomes. Along with fund allocations, the Government should also ensure sustained monitoring. This would entail harnessing inter-ministerial and Centre-state synergies in execution.
While previous Budgets have flagged divestment as a focus area, focused divestment of operating infrastructure assets through public listing of INVITs would allow Indian retail investors to diversify their investment portfolio as well as provide higher yield investment options, Chaturvedi added.
Dhruv Agarwala, Group CEO, Housing.com, PropTiger.com & Makaan.com, said, “Housing sales have bounced back strongly after the second wave of the COVID pandemic. Despite the rise in interest rates on home loans by more than two percentage points over the past year, housing sales have remained strong in 2022, in large part, because of the pent-up demand from the previous two years impacted by the COVID-19 pandemic."
Agarwala added that to sustain this demand, the real estate sector needs some fiscal support in the Budget.
“There is a strong case for interest subsidy to first-time homebuyers as this will boost sales in the real estate sector, which is not only the second biggest employer in the country but also creates demand for two hundred other industries including cement and steel," Agarwala urged.
Agarwala added that the Finance Minister should also consider the industry’s long-pending demand for an increase in tax incentives for both principal and interest paid on home loans by borrowers. There is also a need to enhance the corpus of the stress fund SWAMIH from Rs. 15000 crore to at least Rs 50,000 crore to ensure that more stalled projects get completed. This will go a long way in rebuilding the trust of homebuyers in the residential real estate market."
The real estate sector is a critical catalyst driving the country’s economy. It contributes significantly towards the GDP, provides employment opportunities and contributes to the infrastructure development of the nation.
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Kamal Singal, MD and CEO, Arvind SmartSpaces Ltd., said, “We would like to see the Budget 2023 provide more incentives to the real estate sector and make it easier for developers to access capital, improve project viability and overall affordability. Interventions by the government to regulate the rising input costs would be a welcome move. Reducing the taxes on key raw materials such as cement, steel, and wood will decrease construction costs and enable developers to build homes more economically, thereby increasing the supply and affordability.
Singal also highlighted homebuyer’s perspective, saying that a reduction in GST for under-construction projects will improve affordability. Further, certain tax caps have not been revised since the 2016-17 fiscal.
“It is recommended to revise the 80C tax deductions on the principal repayment, which currently stands at Rs 1.5 lakh and increase the annual tax exemption on housing loan interest from the current Rs 2 lakh to Rs 5 lakh. This increase in loan deduction will help to reduce the financial burden of mortgage payments on buyers and make housing more accessible," Singal urged.
Singal elaborated that over the past few years, the industry has seen a huge shift in the way business is conducted, due to the emergence of digital technology and the ever-evolving consumer preferences.
“We believe that the introduction of technologies like smart insulation, automated energy management and other such innovations will help reduce the overall cost of construction and make it more affordable for end users. We are hoping that the Budget 2023 focuses on sustainability and introduces incentives and subsidies for developers who use sustainable construction materials, energy-efficient technologies and low-emission construction processes," Singal added.
Experts like Dr. Nalin Gupta, MD, J Kumar Infraprojects Ltd. underlined the growing relevance of seamless urban mobility infrastructure projects like metro services.
Gupta said, “Infrastructure plays a key role in the development of the economy. The Indian economy, which is clocking one of the highest rates of growth in GDP among the world, has set an ambitious target of achieving a $5 trillion economy. Obviously this needs world class infrastructure like roads, ports, logistics, rail transport and other facilities. Metro rail is emerging as an eco-friendly and faster mode of transport in congested urban areas. This will need special attention from the Finance Minister in terms of allocation of resources."
Gupta added that environmental protection and sustainable growth too is an important aspect and the Budget is expected to promote more eco-friendly economic growth and incentivise sectors which are promoting clean technology, Gupta said.
Infra.Market’s co-founder Aaditya Sharda underlined that a key element in achieving the $5 trillion economy goal is robust infrastructure growth.
While the government has laid out a vision to invest $1.5 trillion through the National Infrastructure Pipeline, Sharda said the industry hopes to see the momentum sustained in the Budget.
The construction industry is also increasingly focusing on research and innovation. Encouragement from the government in the form of subsidies and incentives, along with tax rationalisation for B2B, retail, and private players, can go a long way in achieving success.
“A reduction in costs of key elements required in setting up infrastructure will provide great respite to players. Public-private partnerships can also help to augment digitisation and innovation in construction, further easing supply chain issues. We hope to see more prominence laid on economic recovery and equipping our country with infrastructure that will improve India’s competitiveness on a global scale," Sharda added.
Union Budget for FY 2023-24 is scheduled to be presented on February 01.
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