How to give a booster shot to ailing real estate industry

People stop buying things and that is how you turn a slowdown into recession said Janet Yellen, an American economist. Her words sum up the current scenario of the real estate market aptly. Aimed at improving sentiments, the revised policies and tax structure are inadvertently creating hurdles for both homebuyers and stakeholders at a time country is battling slowdown.
Our recent analysis at pan-India level shows that close to 13.20 lakh units remained unsold in the market. In case fence sitters come forward and the whole unsold inventory gets exhausted, a whopping Rs 9.40 lakh crore, or 5% of our entire GDP could be generated. The unsold inventory includes both finished and under-construction units.
We agree that such figures do seem overstated given the fact that so many transactions can never take place without equal participation of potential homebuyers, lenders as well as developers. But instead of setting off growth engines full throttle in order to achieve ambitious goals, we are throwing spanners in the works time and again.
To provide crutches to the economy, construction activity shall go on. Besides providing large scale employment, construction work also gives impetus to scores of allied sectors. In the existing scenario, fence sitters prefer ready projects rather than going for the ones which are under construction.
By waiving off GST for ready properties we have pushed under-construction inventory away from the radar of the homebuyers.
While the move to cut down GST rate on under-construction properties from 12% to 5% for units costing over Rs 45 lakh and from 8% to 1% of affordable units priced under Rs 45 lakh this budget was a welcome move, at the same time it ended up hurting the prospects of the under-construction apartment market.
Unsold inventory status by Jun-19
Unsold Inventory Units Value (in crore)
UC 12,02,749 8,50,516
Ready 1,17,046 87,874
Total 13,19,795 9,38,390

Among the total 13.20 lakh units that lie unsold, more than 90% are housed in projects that are in various stages of construction.
We have to create a level playing field for both the segments or else in the coming months, developers will find it difficult to execute projects. All this while developers were able to stay afloat as NBFCs, HFCs and other financial institutions provided funds for projects. Apart from these avenues drying up, developers would also have to forego the revenue they were able to generate by selling under construction projects. The money received was used for further construction work and the wheels kept on turning.
Deceit and fraudulent practices of stakeholders have already shattered hopes of close to 50,000 homebuyers in Noida – Greater Noida cluster. To put a check on construction delays and diversions of funds, government enforced RERA in 2017.
Now the focus should be on developing efficient market conditions in order to boost the ailing economy. Giving a push to the real estate sector shall be the first step. Between June 30, 2018 and June 30, 2019 sale of ready and under-construction units generated Rs 7.31 lakh crore for the economy. Also at the end of June 2019 value of unsold inventory (both ready and under-construction units) stood at Rs 13.20 lakh crore.
It was also seen that two-third of sales were taking place in projects that had obtained completion certificate (secondary market). If we consider an average GST of 5% on both the segments, government would have notched up Rs 36,546 crore as tax revenues instead of just Rs Rs 7,635 crore.
As a result developers are only focused on obtaining completion certificate instead of reinvigorating construction work.

Leave a Reply

Leave a Reply

Your e-mail address will not be published. Required fields are marked *