Indian real estate is the one of the biggest and world’s most recognised sectors, which is the second highest employment generator in the country and contributes around 13% of the country’s GDP. The sector has been grappling with multiple issues, since the pre-Covid era, which created a barrier for its explosive growth. Covid added to the fuel and brought in more challenges into the sector in the last two years. The sector’s revenue and market share decreased to a new low during the initial phase of Covid, and reverse migration of construction labours brought the on-going projects to a standstill.
Though the overall sectoral sales and revenues improved since the beginning of 2021, with businesses and markets gradually returning to their pre-COVID-19 levels, there are still challenges which are preventing the sector from exploring its full potential. Developers and real estate consultants made optimum use of technology for consumer outreach during the lockdown, special offers and rebates were provided for boosting sales, and the government’s affordable housing schemes helped in reviving the sector back during the pandemic.
While a lot of measures are being taken up by the government and private players, real estate still needs more push and right strategies to cater to the growing consumer demands in the country. Real estate is still majorly focused on the metro cities, the smaller cities too need equal push and technological advancements to boost the overall sectoral growth.
Here are some of the reasons which are holding back the growth of the sector:
Unsold inventory: The issues related to unsold inventories are not a pandemic-led problem. As per a recent report, the unsold inventory in India will take around 3.3 years to sell, added with the pandemic shock that India faced. This indicates the primary challenge faced by developers- the older the inventory, the longer time it takes to liquidate. And developers are then left with the option of selling the inventories at high discounts, which depreciates the value of the property and results in huge losses for the industry. Stalled projects and unsold inventories have thus become a major issue, creating a bottleneck for the industry in the last 4-5 years.
Lack of Government Support: While the government has taken up multiple measures and initiatives to support the real estate industry, with infusion of funds, introduction of subsidies and new schemes, there is more support needed from the government. The government should consider granting infrastructure status to the real estate sector; introduce single window clearances, provide easy availability of finance and reduce GST rates, so that more consumers can come forward to buy properties. While developers and real estate consultants are pulling consumers through multiple schemes and offers, the government should bring relaxations in tax rates through reduction in tax rates or revised tax slabs. There is also a need to increase the tax rebate of INR 2 lakh on housing loans, which is highly needed to pull in consumer demand; reintroduction of GST Input Tax Credit will also help in lowering the tax liability borne by developers.
Incomplete inventory: Despite announcement of budgetary support of INR 25k crore by the government, to bring relief to the 1600 stalled projects, there has not been much of progress in the completion of projects. While the move saw some support towards project completions, but it has still not been able to accomplish 4.58 lakh incomplete housing units. Especially, in the smaller cities and towns, developers have been facing major challenges with labourers, raw materials and infrastructural support, which are creating hindrances around inventory completion. With the developers’ capital tied up in completion of existing projects, they cannot look forward to investing money into newer projects or launching new projects. The entire vicious cycle impacts the sentiments of not just the developers but the overall real estate industry.
Need to shift focus from affordable housing: A major part of the government’s focus has been towards the affordable housing segment. With schemes like Housing Mission for All, Pradhan Mantri Awas Yojana, etc. the government has made a great move towards boosting the affordable housing sales, but there has to be an understanding that the affordable housing segment is only 1/3rd of the entire housing realty. Luxury housing and ultra-luxury segments are today increasingly catering to the growing consumer demand amongst today’s millennials, aspirational youth, rising upper middle class and NRI/ HNI segment.
Pandemic has further pushed consumer demand towards this segment, as people now look for open spaces, lawns, gardens, especially with the increased work from home structure. This segment has been completely overlooked by the government; lower GST rates, special schemes should be introduced to boost sales. Luxury housing in smaller cities should also be encouraged, which will contribute to the overall growth of the sector in the times to come.
(By Honeyy Katiyal, Founder of Investors Clinic)