Saturday, May 9, 2009

What to DO to boost the realty sector and Take it Out From Current Phase

The past two years have been eventful for the real estate industry, which saw

unprecedented highs and unimaginable lows, all within a very
short span of time.

But while the world and India tanked into one of the deepest recessions since the great depression of 1929, the government came to recognise that the real estate industry has been one of the primary drivers of the economy, carrying with itself close to 200 small and medium industries and contributing 4.5 per cent to the GDP with a potential to contribute much more.

In a week from now as India gets set for a new government, the real estate industry has drawn up a comprehensive wish list for growth and development of real estate on a sustainable basis.

Niranjan Hiranandani, MD, Hiranandani group and one of the pioneers of the modern real estate industry says, "For the past 60 years the government has only focused on 'roti' and 'kapda'. While that is still very important, it has to also focus on 'makaan' with equal zeal, as that is the third most basic necessity for human survival and an indicator of a nation's prosperity as a whole.

Hence making things easier for the housing industry, so that more supply is possible, is on everybody's mind. Certain procedures have to be simplified and more cooperation is needed to make mass housing possible . Secondly the industry is labour-oriented which can generate a huge amount of employment, contributing hugely to GDP. Hence the government has to look at real estate industry more seriously."

Ram Yadav, head, finance and strategy, Orbit Corporation, takes the discussion on the next level, saying: "We have moved into a different era as the real estate industry has turned more professional, sophisticated and enterprising. It has acquired respectability. While the onus is on the developers to bring in global standards and transparency, the government has to play its part in simplifying the process of clearances by providing a single regulatory body and uniform laws across the country as the business has now become big enough to attract foreign money."

Abhisheck Lodha, director, Lodha Group, corroborates this. "The wish list will revolve around two sets of things. Firstly, the continuation of the overall development and liberalisation of the economy and secondly, streamlining the regulations and clearance process to reduce the time lapse in starting the project, besides making policy measures to boost lowcost housing. Lowering of interest rates is a gradual process but the government should work on making the market more transparent, encouraging private sector participation and act on policy level to make a difference."

Besides these, developers repeatedly emphasise on simplification of taxes on construction materials like cement, steel and other essential commodities. With cement prices escalating at Rs 260 to Rs. 300 a bag, mass housing could remain a dream feel developers.

Jayant Gehi, GM, Marketing, Mayfair Housing agrees. "Land regulation is under the jurisdiction of the state government, but the central government issues policy directions from time to time which are not always followed by the states. The central government has to see them being followed through measures like conditional funding, as they have done under the JNNURM scheme. Similarly, cement cartelisation must also be controlled."

The government should address the need for uniform laws, says Ram Yadav. "It should clearly define whether the units should be sold on carpet area or any other parameter. Whatever the case may be there has to be a clear-cut definition of the saleable area with no scope for ambiguity. The formalities of acquiring a home should also be simplified. It is only in this way that the industry could be freed from its continuous cyclical boom and bust scenarios and the supply could be absorbed by a larger number of people."

According to FICCI, the rate of stamp duty on properties is exorbitant and varies from state to state between 8 to 12 per cent. This needs to be drastically reduced and made uniform across states.

Yadav recommends better regulation and widening the scope for foreign direct investments, and encouragement of REIT and REMF as it is only through these measures that real estate will be able to attract the large amount of money that is required for the kind of development we are envisaging for future development.

Mayur Shah, MD, Marathon Group, says: "The wish list for the new government would firstly include the reintroduction of the scrapped 80IB tax benefit for units below1500 sq ft to encourage LIG housing."

He adds, "Also government should allow foreign buyers to invest in commercial property as FDI is one of the greatest contributors in the real estate sector. The need for foreign investment is due to scarcity of funds. Increment of bank funding on a long-term basis is also required for continued growth of real estate on a sustained basis.

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