Consolidation Imminent in Real Estate Sector: Mr. JC Sharma
December 24th, 2019
The year 2019 has been a tough year for the Indian economy, with the GDP witnessing a slip to reach 4.5% by the end of September. This has prompted the Government to take growth-centric initiatives to revive the economy.
Starting with the Union Budget FY20, the Government continued its support to the affordable housing segment. An additional deduction of up to Rs. 1.5 lakh for interest paid on loans borrowed up to 31st March, 2020 for purchase of a home valued at Rs. 45 lakh has given an added fillip to the affordable housing segment. Further, the GST rate cut was announced under the new scheme of 1% for affordable houses and 5% for other categories. Other significant reforms that have been introduced in the last few years include demonetisation, RERA, GST bankruptcy code and tightening of liquidity. While the measures were much needed for the economy and the real estate sector, these also accelerated a challenging environment.
During the year, the number of insolvencies increased significantly, highlighting the severe cash crunch faced by several developers. These developers were unable to complete projects and meet their debt obligations in the face of the funding crisis. Despite 5 consecutive rate cuts by RBI, banks have not passed on the benefits to the borrowers due to large Non-Performing Assets (NPAs). Considering the situation, the Government has become proactive and introduced further measures to revive the demand. These comprise corporate tax reduction and last mile funding of Rs. 25,000 crore as Alternative Investment Fund (AIF) for unfinished projects, including projects declared as bad loans or are facing insolvency proceedings.
In spite of these difficult times, India’s ability to attract capital is visible through the services sector, especially IT, ITES and start-ups. Further, the growth of office space absorption clearly demonstrate gradual revival of demand in the economy. With the budget around, the benefits of all the initiatives flowing into the economy, consolidation of the real estate sector is imminent. We believe that 2020 should be a year of turnaround.
With the real estate sector playing a critical role in driving the Indian economy, it is only a matter of time before the housing demand improves, leading the nation on the path of sustainable growth.