India’s economic revival is directly dependent on the revival of its core sectors that have shouldered the economy for generations. Real estate contributes immensely to the nation’s growth and is the third largest employer in the country after agriculture and manufacturing. It currently contributes about 6% to India’s GDP and is slated to contribute 13% by 2025. Employing over 50 million Indians at present, the real estate industry on the back of rapid urbanization is poised to touch $1 trillion by 2030. Amid Covid-19 pandemic, what is role of real estate in bringing economy back on track? Amit Agarwal, Co-founder and CEO of NoBroker.com, answers the big question:-
“The sector has created a gigantic web of jobs, not just in construction but also for ancillary jobs which include painting, cleaning, carpentry, security, and many more. Therefore, in order to bring the economy to a flourishing state, the sector must be given all kind of support and reforms. Reforms are needed on the buyer side as well as the builder side,” says Amit Agarwal.
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COVID-19: Reigniting the significance of homeownership
Interestingly, the on-going pandemic has made many tenants realize the importance of homeownership. It made people realise that there is no place quite as safe as a home. Whether in their home-towns or in city outskirts, wherever they could afford, there has been a surge in the demand for home-ownership.
Some of those reforms have already been dished out:
In a move aimed at making home loans cheaper, the Reserve Bank of India is looking to rationalise the risk weights and link them to loan-to-value (LTV) ratios only for all new housing loans sanctioned up to March 31, 2022.
Slashing the repo rate by 115 basis points
The Reserve Bank of India announced a reduction in repo rate by 115 basis points. The steep cut has resulted in a significant drop in home loan interest rates between 7.20% and 8.05%, making homebuying extremely beneficial at this juncture. Buyers who can afford a little more can also go for higher loans to own bigger and more spacious apartments without worrying about repaying high-interest rates.
Stamp duty reduction by the Maharashtra Government
A much-needed initiative taken by the government of Maharashtra, cutting down stamp duty from 5% to 2% until 31st December 2020, has boosted housing sales in Mumbai, bringing it to 86% of the pre-COVID levels. It’s a commendable step to revive the real estate sector. If implemented in other states as well, the move will provide a significant fillip to the sector and contribute significantly to its quick recovery. As per NoBroker.com data, there has been 35% growth in the number of enquiries since the reduction.
Homes as financial security
Millennials have emerged as the most important cohort –the millennials – who until now believed that buying a home would pin them down to a city and be a hurdle in hopping jobs and cities. Amid this uncertain period, however, many of them have started considering homes as financial security, if not for self-use, then for investment, which could get them an additional source of income and help lead a financially stable life, in case of trying times such as these occur in future. NoBroker data reflects that the percentage of millennials looking to buy a house has shot up from 49% pre-Covid to 63% at present.
What is needed?
After witnessing so many challenges, including the rarest of the rare crisis like COVID-19, it’s overwhelming to see how the real estate sector is recovering from the blow. It’s also fascinating to know how the pandemic has presented new opportunities to the industry and its players to innovate and redefine their existing business models to serve customers more seamlessly. All these highlights showcase the sector’s agility and the potential to innovate when it comes to tackling any crisis and come out not only as a winner but also as a game-changer.
While a lot of reforms have been set in motion, there is a still a lot of scope.
GST rationalisation for under construction properties would be a very welcome step. In fact, a zero GST on under-construction projects for the next six months would help the sector. This will provide a fillip to the muted demand and help developers to log further sales, effectively gaining back the absorption momentum – which is necessary for the sector’s healthy recovery.
Provision of a single window clearance for builders to be able to carry out projects and transactions hassle-free would be a good step in that direction.
One-time restructuring of real estate loans specific to the stalled or delayed projects will grant time buffer and flexibility for loan repayment. This ease in loan repayment will go a long way in infusing confidence in customers.
Tax rationalization: If Individual Tax Rate is slashed to 25% , from the obscenely high 40 per cent, making it at apr with corporate tax, it will encourage the investors and buyers and help in demand generation and simultaneously also increase consumption.
Stamp duty waiver: This welcome step has boosted real estate sector in Maharashtra and if carried out states too, it would help.
Digitisation of land records and online property registrations: Digitization of land records is a sign of a developed real estate market should be a priority as this would a significant factor in building credibility to infuse hassle-free investments into the sector, national as well international.
Increasing digital adoption across the sector: Another driver that is significantly contributing to this sector’s revival is accelerated digital adoption by builders and developers. By leveraging technologies like artificial intelligence, machine learning, and virtual reality, these players have enabled reluctant home buyers to search and experience properties online.
Covid-19 is a headwind, but the ensuing good prices and deals have got the buyer interest. Given that this is the onset of festive season, the industry is looking forward to increase in transactions. The sooner the reforms are set in motion, the faster the recovery of economy.
