2 Years of Modi Govt. and Indian Real Estate Industry

On 26th May, Modi Govt. completed its two years. As usual the media & the opinion building apparatus across the nation is fraught with volleys of views, swinging from far left to the right. While his supporters are showering praises, the band of distractors are not keeping any stone unturned in denouncing his tenure.

Getting into this tedious debate is not we are interested in- but as a leading real estate advisory, the fact cannot be denied that last 24 months have seen some really remarkable policy level initiatives, that once realized holds the capacity of entailing significant changes on the coordinates of Indian real estate.

So here is the Snapshot of some of the major policy level changes proposed by the Modi Govt. in last 2 years & how is it going to impact the Indian real estate industry.

Smart City: The Dream Vision of Building 100 Smart Cities

The Proposal: As a vision of ushering India into a new era of urbanization induced growth, the Govt. has proposed to build 100 smart cities in India. Through the deployment of wide scale technologies & innovations, the project will involve integrated townships, infrastructure upgradation, transparent e-governance & better utilities. The smart cities will also encompass business clusters & Special Economic Zones (SEZ) to stimulate investment & employment opportunities.

Present Status: The list of 98 cities is declared. Out of which 33 urban cities, have been successfully chosen over two rounds, that will start receiving govt. seed funding. The govt. has so far allocated around INR 48,000 crores as seed funding. Rest of the funding will be raised from private sector, municipal level tax & revenue collection & various foreign equity funds that are interested in investing -Betting on the economic potential of India. If successfully implemented, the mammoth project won’t just enhance the standards of living in Indian cities but would be great boost to the real estate industry & urban infrastructure.

Housing for All by 2022

The Proposal: As a part of its commitment towards sustainable urban living & growth, Modi govt. has proposed to build houses for Economically Weaker Section (EWS) & Lower Income Group (LIG). The initiative, that will provide interest subsidies & financial aid, envisions to build around 110 million individual units by 2022, the 75th anniversary of Indian independence.

Present Status: The plan will have both urban as well as rural component. Recently the government has announced to build nearly 30 million units in the rural areas. The total expense for building the 1st 10 million units will involve a cost of INR 82,000 crores, out of which around INR 68,000 crores will be incurred from budgetary allocations. Along with govt., many leading private sector enterprises are also jumping the bandwagon. Housing for All is expected to generate a lot of demand for economical cost efficient housing in India in the coming time.

REITS: Enabling Retail Investment in the Indian Commercial Sector

The Proposal: Through Real Estate Investment Trust (REIT), small investors can invest into income generating commercial real estate units. REITs are expected to provide a safe & diversified investment option for Indian investors. Likewise, it will open an alternate capital raising channel for Indian commercial real estate segment.

Present Status: Government has been taking policy initiatives to expedite the process of implementation of REITs in the Indian market. In the latest budget, REITs have been made insulated from the Dividend Distribution Tax, thereby clearing a significant tax hurdle.

Real Estate Regulatory Act

The Proposal: With an objective of bringing in more transparency into the overall Indian real estate industry, Modi govt. has proposed a string of regulations in the form of Real Estate Regulation Act. The act makes it mandatory for the developer to share all the relevant information regarding projects with the Real Estate Regulatory Act (RERA). It also stipulates that developers should park 70% of their cash inflow in a separate bank account to ensure better linkage between cash inflows & project construction. The act will also make developers liable for any delay in construction.

Present Status: The bill has been passed in the Rajya Sabha. In subsequent stage, the state governments need to draft their own versions based on the Center’s guidelines. The act will result into a major paradigm shift with strong emphasis on safeguarding buyer’s interest. It should also ideally boost buyer’s confidence.

In addition, there has been various other host of initiatives that the govt. has undertaken to directly & indirectly boost the real estate industry. There been a series of repo rate cuts to smoothen the mortgage environment. Similarly, the government has been taking up slew of infrastructure boosting initiatives that post realization will make a significant impact towards urban living standards.

Interestingly what sets the present govt. apart is the strong emphasis on urbanization & deployment of housing as a mean but not an end product. In case of previous governments, the focus was more on overall economic prosperity with home affordability being a by-product. In case Modi govt., there has been an attempt towards transforming urban development & housing industry as an engine of economic growth & prosperity by putting focus directly on them.

All these initiatives if done in tandem cannot only pump up the real estate industry but also energize the overall economy by stimulating a range of related sectors such as cement, steel, infrastructure, home finance & many more.

(The article has been authored by Mr. Hitesh Singla, Principal Partner, Squareyards)

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