Budget 2009 - Indian Real Estate Industry’s Expectations & Wish list

There are naturally several expectations from the forthcoming budget as well as speculations about the provisions that will be made available to the real estate and infrastructure sectors this time. Given the year gone by and the newly elected government’s stated sensitivity and urgency towards housing and infrastructure, the expectations from the budget include tax exemptions, easing of fund raising through FDI sources, interest quotient in the case of home loans among others. In the past year, the real estate sector experienced a real slowdown in demand because of the culmination of extraneous factors like rise in interest rates in January-March 2008 by almost 2 percentage points to 12%. At the same time, the prevailing prices of residential apartments in most cities made them unaffordable.

The situation further worsened after global financial markets got affected due to the failure of banks and brokering houses in the US and Europe. This adversely affected the Indian real estate market and demand plummeted.

However, according to World Bank projection, India will grow at 8% in 2010, making it the fastest growing economy for the first time, overtaking China’s growth of 7.7%.In a country of over a billion people, mass scale housing for the general population is the need of the hour for encouraging and sustaining inclusive growth. In the 2001 census, India had a homeless population of 78 million. Delhi had 3.1% of the national level, while Bihar and Tamil Nadu had 1.6% and 7.3% respectively. By all accounts, that figure would have increased substantially in the past 8-9 years. Real estate developers must be encouraged through fiscal incentives to construct small dwelling units at affordable prices and should also be encouraged through Private Public Partnership (PPP). The increase in the construction activity would simultaneously generate millions of job opportunities besides giving a boost to other industries such as cement, iron and steel.

Industry sentiment at present is that the new UPA government will take special measures to bring down the interest rates further to enable the public at large to buy houses. The mantra for developers like us in the present times is to be aware of the changing demand and supply dynamics in the markets. For those who believe that real estate will again become a sellers’ market, it is time for a reality check. The need of the hour is a fresh and honest outlook on deliverables and accountability by developers. Developers should on their part give impetus to the outlook of increasing mutual trust between companies and customers by fostering transparency, be it through their websites, CRM, media communication or corporate blog. This outlook would make the engagement process with the public at large much more interactive, dynamic and mutually rewarding, thereby also allowing the government to look at this sector as an integral partner in the planned growth of the nation.
 
Construction is an integral part of the infrastructure sector and comprises commercial, residential, roadways, waterworks, ports, airports and SEZs. In 2005, the sector generated around 31 million jobs, out of which, the organised sector generated 1.2 million jobs and the unorganized sector generated the rest. Going forward and taking a cue from the government’s ambitious projects lined up for the Eleventh Plan period, the demand for construction is expected to grow by at least 8-9%, and 2.5 million new employment opportunities per annum are expected to be generated.
 
The real estate sector has been asking for extension of tax holiday for five years under section 80-IB (10) for housing projects approved after March 31, 2007. A renewal of section 80-IB, which gives tax waivers to a housing unit built in less than 1,000 sq. ft., should definitely be re-introduced so as to provide a fillip to the construction of much-needed small and affordable homes. This concession was available before 2007! Re-implementation of section 80-IB (10) will greatly help in developing affordable housing in the country. Logically and in keeping with the times, the limit for deduction of interest paid on loans for purchase or construction of houses should also be raised from Rs. 1.5 lakhs to Rs. 3 lakhs.
 
At the same time, we would also like optimum clarity on foreign direct investment (FDI) in retail. The real estate industry requires liberalization in the retail sector for the much needed fillip, especially now when the sector is reeling and feeling the worst effect of the slowdown.  With opponents of FDI in organised retail biting the political dust in 2009, retail players are hoping to expand, especially by way of foreign investments. In 2006, the UPA had encouraged organised retail by opening up FDI in single brand outlets by up to 51%. Unfortunately, the same was not permitted for multi-brand outlets because of the constraints of differing coalition partners at the time. Given that there are many big brands looking at India, government policies will hopefully begin to reflect the greater value, convenience and employment opportunities that retail growth represents for Indian consumers, the industry and India’s overall image as a forward looking nation with a global view.
 
Developers have also been asking for industry status for the housing sector and for extending the definition of infrastructure to include group housing and integrated townships under its fold. With the present government’s stated intent, this should soon become reality.