At a juncture when the growth momentum of the economy is under strain due to ripple effect of prevailing global slowdown, the Bharatiya Janata Party-led National Democratic Alliance government’s decision to allocate funds for revival of the crucial real estate sector to stimulate demand across the wide spectrum of Indian economy is a much needed ste in the right direction.
Faced with the challenge of sustaining the expansion of the economy to keep it in higher trajectory of growth, the government cleared a fund with an initial corpus of Rs. 250 billion to revive up to 458,000 housing units in 1600 projects. These projects will cover construction undertakings including those that have been classified by banks as non-performing assets or are facing insolvency resolution action.
As Finance Minister Mrs. Nirmala Sitharaman indicated, there will be some relief for those who have defaulted on the repayment of their home loan EMIs in the stalled projects across the country.
The package has come two months after the government had announced the setting up of a Rs. 200 billion fund for the completion of stalled affordable and middle income housing projects.
Experts opine these steps will considerably help in revival of the real estate sector, which is facing an acute downturn due to liquidity crunch as several builders are highly leveraged and are unable to sell new apartments. It is also being felt this move will prove to be a win-win scenario for the home buyers and the real estate developers
The real estate sector, which is one of the most globally recognized segments, plays a crucial role in boosting the growth momentum of the economy. In India, the real estate sector predominantly comprises of the housing and construction sectors. It plays a pivotal role in creating job opportunities. This sector also plays a dominant role in stimulating demand cycle across the entire spectrum of the economy including the key core sectors like steel and cement.
The Indian construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. Any exercise to stimulate growth in the real estate sector will ultimately help in spurring the overall growth momentum of the Gross Domestic Product (GDP).
Given the size and dimension of the Indian economy, the real estate sector in India is expected to reach a market size of US$ 1 trillion by 2030 and is expected to contribute 13 per cent to the country’s GDP by 2025. Besides, the real estate sector holds huge potential for attracting Foreign Direct Investment.
As per the Department of Industrial Policy and Promotion, the construction development sector in India has received Foreign Direct Investment equity inflows to the tune of US$ 25.04 billion in the period April 2000-March 2019.
Significantly, the Securities and Exchange Board of India (SEBI) has given its approval for the Real Estate Investment Trust (REIT) platform which will help in allowing all kinds of investors to invest in the Indian real estate market. It would create an opportunity worth US$ 19.65 billion in the Indian market in the next few years.
Responding to an increasingly well-informed consumer base and, bearing in mind the aspect of globalisation, Indian real estate developers have shifted gears and are accepting fresh challenges.
The growing flow of FDI into Indian real estate sector is also encouraging increased transparency. Developers, in order to attract funding, have revamped their accounting and management systems to meet due diligence standards.
Real estate developers, in meeting the growing need for managing multiple projects across cities, are also investing in centralised processes to source material and organise manpower. They are hiring highly qualified professionals in areas like project management, architecture and engineering.
Considering all these factors, India can hardly ignore this major sector given its significant role in boosting the overall profile of the Indian economy. It is indeed a positive steps taken by the government and is crucial for the revival of the real estate sector.
Script: Aditya Raj Das, Senior Economic Journalist