Solving economic crisis through real estate revival

  • Economic Crisis
    11Nov 2019

    Dear Readers,

    A series of short-term measures have the potential to not only bring back to life the beleaguered Indian Real Estate by giving it an opportunity to bounce back, but can also lead to enhanced employment and demand generation, effectively ensuring double digit GDP growth

    Indian real estate faces its most challenging situation as a result of policy reforms and geo-political situation, which impacted the macro economic scenario to the point where the Indian economy is in the throes of an economic slowdown with subdued investment and muted consumption.

    Economies are essentially cyclical in nature and nothing lasts forever – not even an economic slow-down. The challenge here is to ensure the Indian economy recovers from the catastrophic situation where core sector performance is poor - including real estate, one of the major contributors to the nation’s GDP growth.

    The economic policy reforms have led to an operational crisis in real estate. It was yet to recover from the shock of Demonetisation, RERA and GST, when housing finance companies and non-banking finance companies (NBFC) blow-out added to the woes. All these put together choked liquidity and roll over, affecting the functioning of real estate as a business.

    Industry leaders have been frequently flagging rising concerns, the moot point being that revival solutions if implemented correctly and in a timely manner could be a saviour. Several fiscal stimulus measures such as stressed funds and corporate tax cuts have been positive moves towards healing the industry which is suffocating.

    The Indian government and the trade and business bodies have realized that throttling real estate has a cascading effect on 269 allied, core industries like iron, steel, wood, cement etc. The rippling effect has led to job cuts and unemployment which poses an alarming threat to the Indian economy.

    It's a welcome move that the government has announced Rs 25,000-crore stress fund, which will help resolving homebuyers and industry stakeholders woes.

    To make it more impactful, we all have been recommending the following steps which if implemented on an immediate basis, will give a ‘leg up’ to the economy’s recovery too.

    • Zero GST

      For the next six months, GST should be ‘nil’ on under-construction projects. This will provide a thrust to the subdued demand and help developers to log further sales, effectively gaining back the absorption momentum – which is imperative for the sector’s healthy recovery.

    • One Time Roll Over by RBI

      The situation is apt for a One-time roll over announcement – as was done during the Lehman Brothers crisis - as even companies with positive net-worth are gradually turning negative because of the liquidity squeeze. One-time rest ructuring of real estate loans specific to the stalled projects will grant time cushion and flexibility for loan repayment. This ease in loan repayment will go a long way in infusing confidence and open the gateway for the derailed industry to come back on track. The roll over will act as a remedy for the ailing companies to restore business. The RBI Governor recently mentioned that continuing slowdown warranted intensified efforts to restore growth momentum; the One-time roll over will play its part in achieving the same.

    • Rental Stock Creation

      The National Urban Rental Housing Policy guidelines have been shared by the Government. Under the same, allowing developers to create rental stock will add to the supply side of real estate; the target of ‘Housing for All’ can also be achieved by this option. Additional Housing units will be made available via rental stock, which will give home buyers a viable option too.

    • Tax rational ization

      If Individual Tax Rate is slashed to 25% , from the obnoxiously high 40 per cent, making it paripassu with corporate tax, it will not only motivate the investors and buyers and help in demand generation but also increase consumption.

    The Magic Mantra to achieve this return to positive scenario lies in the timely and efficient execution of the suggested measures. Properly implemented, these can help revive real estate, and be a true saviour from the challenging situation.

    (Niranjan Hiranandani, Founder & MD, Hiranandani Group)

    Note: This article was originally posted on https://realty.economictimes.indiatimes.com

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