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Real Estate

Published on: June 16, 2020, 3:03 p.m.
Real estate is still far from recovery
  • The ups and downs of real estate. File picture of the city skyline. Source: Pixabay

By Lancelot Joseph. Executive Editor, Business India

Over the years, the real estate sector has emerged as a key growth engine of the Indian economy, supporting close to 300 industries, generating about 60 million jobs and ultimately contributing about 8-10 per cent of the GDP. Apart from land sellers, industries such as cement, steel, transport, fuel, power, water, finance, electric equipment, tiles, and paints form part of construction of buildings and the revival of real estate is bound to have a positive cascading effect on all of these.

The real estate market is cyclical, has its own ups and downs. But it has not been able to recover from the latest slump. The series of lockdowns have taken it from bad to worse. Having exhausted all avenues, realtors have now taken to online campaign with an SOS to Prime Minister Narendra Modi. The Rs20-lakh crore package announced by the government has done precious little for the cash-strapped sector. “It does not address our issues,” says an open letter written by CREDAI (The Confederation of Real Estate Developers' Associations of India).

Concurring with this, ratings agency Crisil Research says: “….from a cash-flow perspective, this (the package) may not provide much respite for projects as delay in construction will also lead to delay in schedules of construction-linked payments from existing sales.” Also, in the current market, in which completed projects are preferred, participation of end-users will be deferred if completion timelines are stretched.

Adding insult to the injury is an advisory from Union ministers Nitin Gadkari and Piyush Goyal asking realtors to clear inventory by reducing prices if necessary before the developers seek any favours. SBI did ditto.

Easier said than done, says Ram Naik, executive director, The Guardians Real Estate Advisory. There are government regulations that prevent drastic reduction in prices like the Section 43A, 50C and 56. The government has increased the limit of deviation from 5 per cent to 10 per cent but any reduction over and above the same attracts a steep penalty both for the buyer and seller, points out Naik.

CREDAI MCHI (The Maharashtra Chamber of Housing Industry) has formed an MMR (Mumbai Metropolitan Region) Action Committee to mastermind a communication campaign. It floated an online petition seeking a three-point relief plan – one-time debt restructuring, reduction of home-loan interest to 5 per cent, extension of RERA deadlines to complete projects by a year.

The campaign #ReviveRealEstateReviveEconomy has garnered 35,000 signatures and the twitter handle @RealtyBuilds GDP is getting hits.

Armed with these, the MMR Action Committee organised a webinar with BJP strongman Devendra Fadnavis, who is also the leader of opposition in the Maharashtra Legislative Assembly. The event had 1,000 developers participating. Fadnavis tweeted: “Received online petition from CREDAI-MCHI, signed by almost 35,000 developers. The real estate industry requires many interventions from state and Central government. I have assured them to take their petition to Hon FM @nsitharamanji”.

In another tweet, he said: “Along with other, main issues are restructuring of loans, pushing banks, HFCs & NBFCs to pass on benefits of repo rate cuts to the consumers, input tax credit to be given under GST. I assure all members that these and all issues will be taken up with the appropriate authorities.”

Pat came Union finance minister Nirmala Sitharaman’s reply tweet: “Thanks Devendraji. Will receive the petition that you shall send. Assure you that we’ll give it a fresh and open-minded look”.

For the Action Committee it’s well begun, half done. “We now pin our hopes on the government for further action as Fadnavis promised to take up all our issues,” says Ajay Ashar, the spokesperson.

The MMR action committee also wants home loan interest rates to be brought down to 5 per cent to help improve consumer sentiment.

Crisil Research points out that in terms of funding, the sector has struggled over the past 12-18 months. In fact, over March-December 2019, total lending (NBFCs and banks) to developers declined from Rs4.6 lakh crore to Rs4.1 lakh crore. Stress is likely to mount as around half of the loan book under moratorium is expected to come out of moratorium by March 2021.

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