In the year 2014 when the NDA came into power with overwhelming majority, it was clear that some bold reformatory moves are there on the cards. Though the glimpse of reforms were visible right after two-three months, the giant reformatory leaps were taken in the year 2016. Obviously, the aim was to bring the derailed economy back on track. Real estate, being one of the important sectors contribution massively to country’s GDP, became the epicenter of most of these reforms. Real estate and infrastructure contribute to around 9% in country’s GDP. It is the second largest employment generating sector in the economy as well. When Mr. Modi announced that he wants every Indian to have his own abode by the year 2022, it gave a clear indication that real estate, erstwhile a neglected sector, is going to experience some magical moves. And why not!
The year 2016 has been one of the remarkable years for the Indian real estate sector in particular. Number of initiatives were taken which shall reap tremendous benefits to the sector and the economy as a whole. No doubt, the initial two months were engulfed with shadows of slowdown carried forward from last year. In past two-three years, real estate had performed under par. Sales were hit, buyers preferred sitting on fence. Entire sector reeled under the inventory pressure. Though, the smart cities came as the silver lining, the roadmap was not yet clear.
The first bucket of joy came from Union Minister of Finance when he announced plenty of reformatory measures in his budget speech. The monotony was broken. He anchored the sector with his reformatory statements for affordable housing segment. Although, it did not have reciprocating impact on the overall segments, it definitely boosted buyers’ confidence. It was a much needed push; developers started receiving sales queries. Properties with locational advantages and justified pricing started getting attention. It also had another impact on the sector; developers who were once milting money out of premium and luxury projects shifted their focus to mid and affordable housing segments.
The budgetary amusement got further enhanced when parliament cleared the much awaited Real Estate Regulatory Bill and paved way for formation of Real Estate Regulatory Authority (RERA) focusing on streamlining the approval mechanism. It requires almost 125 approvals from various agencies and authorities to start construction of a project. This takes majority of time and money. With RERA coming into picture, this hassle is expected to smoothen drastically. The Union and various state governments further strengthened RERA with proposals related to respective governments. RERA is definitely a big boost to the sector. Coupled with relaxation in FDI in construction sector, RERA will bring in transparency and will attract foreign investors. Remember, sector has been reeling under fund crunch and this move directly addresses this issue.
The move on GST is another great example of how the government looks at solving taxation issues the real estate has been facing since years. Normally, a developer has to pay triple tax on same transaction. First it pays the excise duty on raw materials, then the goods tax and then he pays service tax because his is servicing his client by developing his house. Collectively, these tax amount to almost 30% of the overall cost of a project. With GST coming into picture, multiplicity of taxes would be a thing of the past. Eventually, property prices would also come down.
Lastly, the demonetization drive that the government has initiated is a far-sighted step bound to deliver favorable results in days to come. This drive will have three impacts on the sector; it will comb-out the unorganized and fly-by-night operators from the market, thereby infusing greater transparency. Secondly, it is expected to regulate property prices as black money will no more be used to cartelize the market. Thirdly, it will bring in real buyers into the system and therefore force developers to behave properly. Developers shall now not be able to fool the buyers.
With all these developments happening in one single year, their impact is bound to reflect slowly. It is expected that the year 2017 will start with a not so hunky dory ride, though the following quarters will show some respite and some real positive impact. Considering the recent fall in CPI and inflation rates, the Reserve Bank will also cut the key rates by significant amount in its next monetary policy review. This will help buyers and developers with an affordable funding options. Overall, the year 2016 has been an eventful year for the real estate sector. The results of all the moves are expected to come out gradually in the year 2017.