With the Budget
2015 around the corner now, real estate developers are keeping their
fingers crossed for Modi's government to announce policy reforms that
will change the dynamics of the industry.
Industry players have commonly voiced that the government must announced reforms to cut down on the bureaucratic red tape involved in project development. "Expedited clearances for a larger segment of residential projects will be a key for reducing project delays. An announcement that streamlines the process of obtaining clearances will go a very long way in boosting the real estate industry," said Anil Pharande, chairman and managing director of Pharande Spaces.
The current scenario
According to Rohit Gera, managing director of Gera Developments, the realty sector has been under stress as the sector is a highly capital intensive business, with a major portion of the residential segment being financed through customer sales proceeds. "Developers therefore do their budgeting with this assumption and therefore, for the most part, finance costs on construction of the project are not factored in the proforma profit calculations. As a result, when sales are slow as they have been, developers (who have access to construction finance) are forced to borrow and the interest costs eat into profitability," said Gera.
He further added that in the past few years, the construction costs have surged "This gets further compounded when construction costs rise more than the increases in the sale prices of the apartments. In 2009, in spite of the continuing negative sentiment based on the global meltdown, the UPA re-election led to an instant impact to the stock and real estate markets. This time however, even though the mandate has been far more decisive, the real estate segment has not seen the turn in customer sentiment and purchase. I believe this is because people are waiting to actually see the benefits to their pockets of the ache din promise by the government," noted Gera.
Industry experts have suggested that the government will have to take several measures to improve the sentiment in the real estate sector. Apart from reducing the red tapism that mars the industry, realty developers expect the government to take steps to regulate the construction material costs.
Reiterating Gera's concerns, industry players have emphasized that the government has to regulate the rising prices of raw materials such as cement and steel as they have adversely impacted the input cost of a project. "The costs of raw materials such as cement and steel need to be brought down or an upper ceiling imposed on their prices," stated Pharande.
Apart from regulating the input cost of a project, industry players have also suggested that Union Budget 2015-16 should address the tax issues in the sector. In what could be a relief for the home buyers, the developers have recommended the government to remove multiple taxes such as VAT and service tax along with stamp duty and registration charges while purchasing a house. "Stamp duty and registration costs are as high as 6% in most cases, and this needs to be reduced by a few base points to aid consumers. Alternatively, a slab-based approach should be introduced. Stamp duty falls under state government purview, but the Center can nevertheless issue a directive to reduce stamp duty costs. Also, Goods and Service Tax (GST) should be introduced in the place of these taxes," said Kishore Pate, chairman and managing director of Amit Enterprises Housing Ltd.
Raising the issue of ambiguity in the functioning of the real estate sector, builders have recommended the government should implement the Real Estate Regulatory bill, which will bring in an apex body in the sector, which is expected to address concerns with transparency.
The credit challenge
Real estate players have time and again asserted that realty sector is a capital intensive sector and raising finance for newer projects has been a challenge. With the budget 2015 soon to be announced, industry players are hoping that the government will be more pro-active in facilitating credit availability for the industry.
"The budget needs to do something to bring down the cost of borrowing for developers, because raising capital for development of new projects remains a huge challenge. Lending rates for real estate development currently range between 12% to 14%, and raising funds through other sources is even more expensive. The interest rates on lending to real estate developers should be brought down so as to help rationalize the cost of construction. This would also help in bringing down property prices," said Arvind Jain, managing director of Pride Group.
Talking about higher interest rates that have dampened the consumer sentiment in the past few years, Jain noted, "We real estate sector was cheered by the recent cut in interest rates, but it was by itself not sufficient to amount to any real advantage to home buyers. The Union budget should bring a significant decrease in interest rates on home loans. The Ministry for Urban Development and Housing had made it clear that it would maintain a sharp focus on reducing home loan interest rates, and the budget will hopefully bring firm evidence of this focus. Developers, home buyers and banks are all keenly awaiting such an announcement, which would bring with it a significant revival in sentiment".
It has been a wonderful experience in owning a commercial space at Gera's latest offering in Goa GERA GRAND.
How has your experience been of owning a commercial space with Gera?
My experience has been excellent. I have purchased an office in Gera’s Imperium 2 and a s..
Having a commercial space in and around Panjim was our long desire and this could be possible with Gera’s.
Patto Plaza has ..
First of all I would like to thank you and the Gera team for organizing different workshops at our doorstep.
The best thing I have done to my kids is that I took a right decision to buy a flat in Gera.
Because of this decision , Vishnu could attend the development workshops that were conducted.
Vishnu was a shy child who didn't like to participate in any of the programmes.
As far as Dale Carnegie workshops is concerned it has given him a lot of confidence and was presenting things in a much better way and I can see a lot of improvement in him.In simple words u made a person(..
My son Tattva had been enrolled in the intermediate level and has been coached by the Vishwanathan Anand Chess Academy coach . Tattva has made remarkable strides and will be on his way to get his FIDE rating in November. A lot of credit goes to the mentor for his unique way of handling his students. He has been very patient while working with Tattva on his areas of improvement. In addition before the tournament the coach had voluntarily added additional classes and doubled his efforts to get a better performance out of Tattva. He has shown complete ownership which is commendable. I hope he continues to develop more and more chess players in the coming days...