India’s liquidity-starved real estate sector is looking for succour from the Union Budget 2013-14 and hopes to be granted ‘infrastructure’ and ‘industry’ status by the Government which should help it get access to funds.
The real estate sector feels this would help alleviate many of its problems. “The Indian real estate sector is currently facing challenges like increased land cost, delay in approvals, lack of availability of funds both at buyers’ and developers’ levels, under-developed infrastructure and skilled manpower,” said Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield, a real estate advisory firm.
Granting ‘infrastructure’ status to real estate is expected to directly enhance availability of funding under the foreign direct investment (FDI), external commercial borrowing (ECB) and domestic bank lending routes.
Real estate is similar to the infrastructure sector in that it requires large quantum of finance for purchase of land, development, construction as well as high maintenance costs. It also requires large quantum of funding over a span of a number of years.
According to Mr. Dutt, real estate is also the second largest employer in the country, employing 18 million people directly. Lalit Kumar Jain, President, Confederation of Real Estate Developers’ Associations of India (CREDAI), told The Hindu that there should be a special affordable housing scheme with tax sops, and also a special rental housing scheme. “There is a need for real estate investment trusts (REIT) to bring in liquidity and for interest payments on housing loans. The 12-year-old ceiling of Rs. 1.5 lakh should rise to Rs. 5 lakh.”
Mr. Jain felt that granting the sector ‘industry’ status would allow formulation of effective policies to provide more sources of finance. The grant of industry status, according to Rayomand Dastur, Executive Vice-President, Shapoorji Pallonji Real Estate, “will help risk-weights for the sector be lowered by banks, leading to better interest rates and lower collateral values, thus boosting the overall sector.”
Will enhance the availability of funding under the foreign direct investment and domestic bank lending routes