Healing the housing imbalance

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Hrydhal Damani

The Covid-19 pandemic has delivered another blow to the battered Indian real estate sector. The nationwide lockdown is perhaps the most ill-timed for the sector, and would most probably amplify current headwinds. The sudden evaporation of liquidity, demand, labour, material and equipment availability will exacerbate the issues of unsold inventory, delayed projects, and non- performing projects, writes Hrydhal Damani, Director – Urban Practice, CRISIL Infrastructure Advisory.

The sector is not a small one. Its contribution to the gross domestic product (GDP) is expected to grow to 13 percent by 2030 from 6-7 percent at present. Moreover, the construction industry is the third-largest employer in the country, after agriculture and manufacturing, having a multiplier effect on over 250 allied industries.

While the long-term projections for the real estate sector are upbeat, the past year witnessed the onset of a short-term slump. While the government’s broader reform measures – such as demonetisation, Goods and Services Tax (GST) and the Real Estate (Regulation and Development) Act, (RERA), 2016 – kicked in over the past few years, the sector was also being plagued by the liquidity crunch due to the NBFC crisis and a shrinking housing demand amid an economic slowdown.

The sector grew a meagre one percent in 2019, because of multiple headwinds, hurting from both the supply and demand sides. However, the sector has got the chance to convert the current crisis, driven by the pandemic, into an opportunity to reform. The revival should take shape through a concerted and coordinated effort by both the government and the private sectors to bring back the confidence of buyers and developers. This can be done through a two-pronged strategy – boosting demand and enabling the completion of projects.

To revive demand, the government should focus on:

  • Lowering interest rates on housing loans in the short term.

  • Operationalising short-term personal-tax relief and hiking the income-tax rebates associated

  • with tax deductions claimed on home loans.

  • Waiving off the tax on notional rental income levied on the purchase of additional homes.

  • Increasing the subsidies under the Credit-Linked Subsidy Scheme (CLSS) of the Pradhan Mantri Awas Yojana (PMAY) and also recalibrating the beneficiaries based on housing prices of cities.

  • Offering a short-term window for lower stamp-duty rates.

Also Read: One for the road, too

To revive supply, the government should take the following measures:

  • Relax the external commercial borrowing (ECB) norms, allowing cash flow into the sector.

  • Confer industry status to the sector – currently enjoyed only by the affordable housing segment.

  • Enabling developers to raise funds at lower rates and reduce their cost of capital.

  • Improve incentives for the creation of more affordable housing.

  • Offer relaxation, through the state-level Real Estate Regulatory Authorities, on the committed completion dates, but incentivise faster completion.

  • Fast-track disposal of government-owned land parcels, especially those earmarked under the PMAY. Additionally, infrastructure spending should be undertaken to open up new affordable land.

  • Reduce, defer or collect in instalments (through municipal bodies) the value of sales of premium Floor Space Index (FSI) – Put in places the action measures for local bodies to reduce the cost and shorten the time for building approvals.

  • Expenditure on committed projects should be expedited to ensure rapid expansion of infrastructure and basic services in cities; there are unutilised funds granted under various Central Government missions (Smart Cities Mission, Swachcha Bharat Mission and Atal Mission for Rejuvenation and Urban Transformation, or AMRUT) and available with cities.

Additionally, developers should also recast their businesses to expedite completion of ongoing projects and disposal of unsold inventory to generate immediate revenue. They should focus on:

  • Phasing and prioritising projects to ensure faster completion.

  • Repurposing on-going projects to focus on small-ticket, affordable-home construction to increase absorption.

  • Recasting construction technology to utilise resources available locally.

  • Putting in safeguards, such as risk management and business continuity plans, to ensure minimum disruption during the lockdown.

  • Mitigation of reverse migration of construction labour which could lead to acute labour shortage for the industry through provisions of minimum-wage guarantee, food, sanitation and medical facilities.


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