Real estate sector needs reform

Many years from now, when the Covid-19 pandemic is well and truly behind us, an epiphany that is here to stay is that home is the safest place.

During the early days of the lockdown, we saw how so many prioritised going home. Airports around the world were packed with people waiting to be repatriated home. In India, many people stepped forward and organised to ensure that people who were stuck in different places can reach home to their respective city, town and villages comfortably and in good health.

The Indian real estate industry is to be credited for achieving tremendous progress in developing homes for all sections of the society, despite facing a myriad of challenges. Housing sales reached 2.61 lakh units in 2019 across seven major cities, with the overall market size pegged at Rs. 12,000 crore. By 2030, the industry’s market size is expected to surpass the US$ 1 trillion-mark, and about five years from now the sector is projected to contribute as much as 13 per cent to the national GDP. The sector is also a very large source for informal employment, with estimates ranging from 12-15 million people.

Despite the existing housing policy measures, the country is still facing an unprecedented housing shortage. Hence, it is clear that a focused review of various regulations is the need of the hour to holistically sort out the factors impinging the realty sector for it to be viable and competitive in serving the public mandate of homeownership.

One of the key challenges emanates from the often conflicting rules in land acquisition, land use and FSI. Developers are also facing plenty of challenges to acquire land with clear titles, as records claiming ownership still remain unclear. Further, skilling of workmen vests with the industry as there is an open gap between the skills required and what is in majority supply. After the Covid-19 lockdowns, capital crunch, liquidity management, shortage of skilled labour, disruptions across supply lines and tepid demand have amplified the problems further.

The Government announced a slew of measures to drive home urgent relief: extension of registration and completion date of real estate projects under RERA by six months expiring on or before March 25, 2020, using the force majeure clause, special liquidity support of Rs. 30,000 crore to NBFCs and HFCs, an extension of Credit Linked Subsidy Scheme (CLSS) for the affordable housing category, a moratorium on term loans and working capital facilities up to August 2020, etc.

Important as these measures are, there is also an urgent requirement of well thought robust policy roadmap for the housing segment to bring the health of the sector back into a fit shape. Covid-19 should be taken in the context of a major disrupter for real estate, with the opportunity used for bold and rapid structural reform.

There is a need for holistic regulatory and financial stimuli aimed at quickening recovery, and this can be achieved through the facilitation of ease of doing business on the one hand, while also ensuring adequate liquidity support for current-day sustenance. Further, measures such as extending loan moratoriums, while also widening RERA timelines and NBFC loans beyond one year will provide additional support.

Policy reforms at a holistic level are also crucial for the real estate industry, especially in attracting foreign capital around India’s emerging credence as an alternative manufacturing base. Hence, unified laws and policy reforms across the value chain that help fast-track land allotment processes and project permissions will unquestionably create a more solid platform for generating induced demand for homes, offices and other allied asset classes.

Labour reform is yet another area that will bring resilience to the way the real estate industry operates. Further, greater clarity on health and safety protocols and best practices will ensure better easement into the new normal.

In a credible measure to relieve the financial burden on the real estate buyer, Maharashtra recently implemented a 1% reduction in stamp duty in the state for a period of two years, starting from April 2020. Other states should look at similar initiatives too, which can stir genuine real estate demand.

(The writer is Managing Director, Puravankara Limited)