Good days beckon realty sector
The real estate sector is taking advantage of increasing demand to own houses in small towns and cities shifting focus from already developed cities
The realty sector, which was badly hit after Covid-19 pandemic spread in India, is slowly bouncing back. The sector, notwithstanding losses suffered in the past two years due to frequent lockdowns and dislocation in supplies, has adopted a two-pronged strategy - while lobbying with the government for checking rise in prices of raw material like steel and cement, it is trying to take advantage of the increasing demand to own houses in small towns and cities shifting focus from already developed cities. "We are very optimistic about the growing demand in smaller towns and cities," said Harsh Vardhan Patodia, president, Credai National.
In an exclusive interview to Bizz Buzz, he said they are also trying to impress upon the authorities to improve the ecosystem for the real estate as well as construction sector by removing the bottlenecks and rationalisation of GST to benefit all.
How is the real estate sector post-Covid-19?
Out of all industries, the realty sector was impacted the most by the challenges posed by Covid-19. This period was challenging both for developers and customers due to financial uncertainties. The pandemic has been imposed on everybody. But through numerous highs and lows, the sector has shown resilience in the past one and a half years and is now on a path of K-shaped recovery, with the help of government interventions. The recovery can be attributed to many factors including the unchanged repo rate for a record period of time, low interest on home loans and reduction in stamp duty etc.
Any impact on the Ukraine War and subsequent increase in raw material prices on construction cost?
The subsequent rise in the prices of crude oil, raw materials and energy is surely a point of concern for the realtors. The cost of cement increased by more than Rs100 per bag and steel prices have witnessed an increase of 2.3 times from Rs 39,000 a metric tonne last year to Rs 90,000 as of the date. Even though the sector has remained resilient, more than 40 per cent increase in raw material prices (whereas prices of steel, cement, aluminium, PVC rose sharply anywhere between 30 to 100 per cent during the last year itself) is a concerning signal for the realty industry, especially those who are working for affordable homes since their margin levels are as low as Rs 800-1,000 per square foot. A recent report also drew insights forecasting a 7-8 per cent price rise over the next 12 months if the quarterly rise of 2 per cent price hike continues into the current year.
Is there any response to relief you have sought on simplification of GST?
It has been a long-standing demand of the real estate sector that the developers are given the option to choose from the existing rate of 1 per cent and 5 per cent without input tax credit (ITC) or the pre-2019 rate of 8 per cent and 12 per cent with ITC on GST. Hopefully, the government will consider the recommendation positively.
Has the offer of low housing loan interest led to rise in demand for houses?
We are glad that the government eased the interest rates on home loans which have helped maintain sales momentum in the sector. The low-interest regime has also kept the home buyers motivated to fulfill their dream of owning a house of their own thereby, keeping the sales velocity high. This would eventually be beneficial for the sector, which is still trying to cope with the repercussions of the pandemic. Especially after the rise in the input costs of raw materials, interventions undertaken to encourage home-buying decisions are the only factors which have helped accelerate growth and evoke a sense of optimism within the industry.
Is it a fact that high realty prices and work from home concepts as part of digital transformation post-pandemic have led to a shift in preference for housing in satellite townships around big cities?
The demand for satellite townships has increased post-pandemic since the importance of hybrid and remote working office culture has taken precedence in everyone's lives. Working from home becomes a major challenge when you don't have segregated space for working to help distinguish a thin line between personal professional lives. This has forced individuals to shift to new houses where they can set up workstations. Many large-scale projects around big cities have been trying to meet this changing demand by offering additional spaces which can be converted to workplace or study spaces. The idea is much more prominent in cities, metros where people prefer to live in high-rise apartments with balconies offering spectacular views, along with convenient and spacious layouts of apartments.
What are the other issues Credai is fighting for to get them redressed?
We, at Credai, laud the government's timely intervention to address inflation as the Indian economy had stayed resilient while grappling with the strains of cost inflation of raw material prices in the last 18 months. While the impact of these measures will take time to show an effect on the ground, the real estate sector is hopeful that these steps will address some of the issues the sector has been facing. Credai has been urging the government to address the following issues pertaining to the real estate sector:
Allowing the facility of charging either at the old rate of 8 per cent for affordable housing or 12 per cent for non-affordable housing with ITC or the rate of 1 per cent or 5 per cent without ITC. The developer may be given the option of choosing the rate project-wise.
Additionally, for the steady growth of the nation, timely delivery of projects aid in improving the quality of residential and commercial activities. However, Environmental Clearance (ECs) has been taking a longer time than expected which negatively impacts the delivery of projects. Another issue is related to project development around airports with height restrictions and permissions for construction near defense sites. These limitations are acting as impediments to the growth of the industry.
With the economies around the world bouncing back slowly, how do you anticipate the future for the real estate sector?
As per reports and data available, the real estate market is projected to grow by $1 trillion in market size by 2030, up from $200 billion in 2021, and contribute 13 per cent to the country's GDP by 2025. With robust initiatives of the government such as the Pradhan Mantri Awas Yojana (PMAY) scheme of the Union Ministry of Housing and Urban Affairs, the residential sector is expected to grow substantially, with an aim of building 20 million affordable houses in urban areas across the country by 2022. Additionally, we have seen a growing influx of FDI in the Indian real estate sector and it is further expected to attract a substantial amount of $8 billion in FDI, in the next two years as part of capital infusion.