Can Stimulus Package help Revive the Real Estate Sector by Rakesh Reddy Director, Aparna Constructions & Estates Pvt. Ltd
Will The FM’s Economic Stimulus Package Help to Revive the Real Estate Sector?- Rakesh Reddy, Director, Aparna Constructions & Estates Pvt. Ltd
The Government’s economic stimulus package comes at a time when India has witnessed its weakest growth since 2012. The slowdown is attributed to corporate and environmental regulatory uncertainty and lingering weakness in non-banking financial companies. The far-reaching impact of the real estate sector on India’s overall economic performance is clear. The growth of the real estate sector has a multiplier effect on the growth of the entire economy and is responsible for millions of jobs.
The real estate sector has witnessed many transformative reforms over the past few years that have significantly changed the dynamics of how the sector operates. These reforms have revived consumer confidence and introduced much-needed formality to the sector. The key drivers of growth for the sector are regulatory reforms including RERA and GST, relaxation in FDI which will encourage more investment, steady demand generated through urbanisation, rising household income and the emergence of affordable housing.
While the reforms will have positive implications for the real estate sector, there will be short-term challenges during the transition. It is important that the government lays the groundwork to provide a strong impetus for growth moving forward.
The economic stimulus package includes a Rs 10000 crore special window to provide last-mile funding for the completion of ongoing housing projects. A matching amount is expected from outside investors, institutions and private capital. These funds will aid the completion of approximately 3.5 lakh affordable and middle-income housing units. Importantly, the projects eligible for funding are restricted to those which are not non-payable assets or involved in bankruptcy proceedings.
Lowering the interest rates on house building advance for government servants is a positive step. Since government servants comprise a significant component of housing demand, lowering the interest rate will encourage more government servants to buy new houses.
The government also announced that the External Commercial Borrowing guidelines will be relaxed to help housing developers obtain overseas funds as well as facilitate the financing of home buyers who are eligible under Pradhan Mantri Awas Yojna.
This fillip to the slowing economy comes on the heels of the Reserve Bank of India directed by banks to link their floating rate loan products to external benchmarks. This move is expected to lower EMIs on home loans, as well as reduce the debt repayment burden on developers. It presents a great opportunity for the sector as the ease of financing should translate into increased sales, new project launches and a rejuvenated economy.
With the government’s continued support, the real estate sector looks forward to reaching new heights. The contribution of the real estate sector is set to grow at a rate of 30% Compound Annual Growth Rate in the next ten years and is expected to have revenues worth $180 billion by 2020. Building the infrastructure for a 10 trillion dollar economy by 2032 requires a concerted effort from all stakeholders.
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