Housing and Urban Affairs Secretary Durga Shanker Mishra on Friday said the government will look into various demand of the real estate industry, including an extension of timeline for completion of projects by 6-9 months. He highlighted various initiatives taken by the government in the past seven years such as development of 1.12 crore houses under the Prime Minister Awas Yojana (PMAY), launch of the Affordable Rental Housing Complex scheme for migrant workers, ‘infrastructure’ status to affordable housing, and 100 smart cities. Mishra was addressing a webinar organised by realtors body NAREDCO.
NAREDCO’s representatives made several demands before the secretary to revive both demand and supply in the sector that has been badly affected by the COVID-19 pandemic. The association sought extension of timeline for completion of projects by 6-9 months under the realty law RERA, extension of all building permissions till March 2023, rationalisation of government taxes on real estate, and control of rising prices of cement and steel. It also sought reintroduction of interest subvention scheme, grant of input credit tax on GST paid in leased commercial real estate, suspension of insolvency law for some more period, and an online environment clearance system. Responding to the demand of extension of timeline for project completion, Mishra assured that he will ‘go in detail’ to understand the matter. ‘If need be, we will take this matter to RAC (RERA Advisory Council),’ he said.
However, the secretary did mention that this relief was given last year because of the imposition of the national lockdown. On high taxes levied by the central and state governments on real estate, Mishra directed the ministry’s senior officials to examine the matter in detail. ‘We will try to reduce government levies,’ he said. Regarding a rise in prices of steel and cement, Mishra said he took up this issue with the ministry’s concerned and would discuss the issue again. On the PMAY, he said 1.13 crore houses have already been sanctioned and out of that, 48 lakh have been completed and handed over to the people. The secretary informed that India’s ranking in ease of doing business related to construction activities improved to 27 from 186. He said the new ranking is expected any time and expressed confidence that ‘we will be in top-20’.
The secretary said the real estate sector contributes seven per cent to the gross domestic product (GDP). It is a USD 200-billion industry and set to become a USD 1-trillion sector with rapid urbanisation, he added. Emphasising on affordable housing, Mishra said the highest housing demand is in economically weaker section (EWS) and low-income group (LIG), and observed that the millennial also wants 2-3 BHK flats and not bungalows. Talking about the Central Vista Project, Mishra said the new Parliament building will be ready next year. He also rubbished criticism about this project. At the outset, NAREDCO President Niranjan Hiranandani said the construction activities have slowed down because of the second wave, as only 50 per cent labourers are working on sites. He demanded that timeline for completion of projects should be extended as it was done last year. NAREDCO Chairman Rajeev Talwar said all permission related to the development of projects should be valid till March 2023.
Tata Housing MD and CEO Sanjay Dutt expressed concern about the abnormal price rise in cement and steel. He said steel prices have more than doubled while cement rates have gone up by 50-70 per cent in the past one year. Dutt also pitched for reintroduction of subvention scheme, under which builders agree to pay EMI on the behalf of homebuyers for a certain period. Neel Raheja of K Raheja group put forward demand related to commercial real estate and sought inputbtax credit benefit. Rajan Bandelkar from Naredco Maharashtra said the second wave has more impact on the sector than the last year’s first wave. He demanded extension of timeline for project completion by 6-9 months as well as suspension of insolvency laws for some period. Ashok Mohanani, president of NAREDCO Maharashtra, was also present in the meeting. NAREDCO is one of the leading associations for the real estate sector with around 5,000 members.
Why builders’ demand in realty sector
By 2040, real estate market will grow to Rs. 65,000 crore (US$ 9.30 billion) from Rs. 12,000 crore (US$ 1.72 billion) in 2019. Real estate sector in India is expected to reach a market size of US$ 1 trillion by 2030 from US$ 120 billion in 2017 and contribute 13% to the country’s GDP by 2025. Retail, hospitality, and commercial real estate are also growing significantly, providing the much-needed infrastructure for India’s growing needs.
The office market in top eight cities recorded transactions of 22.2 msf from July 2020 to December 2020, whereas new completions were recorded at 17.2 msf in the same period. In terms of share of sectoral occupiers, Information Technology (IT/ITeS) sector dominated with a 41% share in second half of 2020, followed by BSFI and Manufacturing sectors with 16% each, while Other Services and Co-working sectors recorded 17% and 10%, respectively.
In 2020, the manufacturing sector accounted for 24% of office space leasing at 5.7 million square feet. SMEs and electronic component manufacturers leased the most between Pune, Chennai and Delhi NCR, followed by auto sector leasing in Chennai, Ahmedabad and Pune. The 3PL, e-commerce and retail segments accounted for 34%, 26% and 9% of office space leases, respectively. Retail real estate and warehousing segment attracted private equity (PE) investments of US$ 220 million and US$ 971 million, respectively, in 2020. Grade-A office space absorption is expected to cross 700 msf by 2022, with Delhi-NCR contributing the most to this demand.
Housing launches were 86,139 units across the top eight Indian cities in the second half of 2020. Home sales volume across eight major cities in India jumped by 2x to 61,593 units from October 2020 to December 2020, compared with 33,403 units in the previous quarter, signifying healthy recovery post the strict lockdown imposed in the second quarter due to the spread of COVID-19 in the country. According to the Economic Times Housing Finance Summit, about 3 houses are built per 1,000 people per year compared with the required construction rate of five houses per 1,000 population. The current shortage of housing in urban areas is estimated to be ~10 million units. An additional 25 million units of affordable housing are required by 2030 to meet the growth in the country’s urban population.
Investments/Developments
Indian real estate sector has witnessed high growth in the recent times with rise in demand for office as well as residential spaces. Indian real estate attracted U$ 5 billion institutional investments in 2020, equivalent to 93% of transactions recorded in the previous year. Investments from private equity (PE) players and VC funds reached US$ 4.06 billion in 2020. Exports from SEZs reached Rs. 7.96 lakh crore (US$ 113.0 billion) in FY20 and grew ~13.6% from Rs. 7.1 lakh crore (US$ 100.3 billion) in FY19.
According to the data released by Department for Promotion of Industry and Internal Trade Policy (DPIIT), construction is the third-largest sector in terms of FDI inflow. FDI in the sector (including construction development and construction activities) stood at US$ 42.97 billion between April 2000 and September 2020.