Modi government to change housing buyers’ sentiments from negative to positive

By Reema Sharma | Last Updated: Saturday, August 30, 2014 - 13:52

Reema Sharma

India's real estate sector has got an optimistic push from the new government led by Narendra Modi whose announcement on housing sector in 2014 Budget has encouraged both buyers and developers.
 
While improvement in the overall economy is directly proportionate to improvement in the real estate sector, it is also important that all the measures and announcements are implemented properly.
 
Surajit Chanda, Regional Director – Sobha Limited (formerly Sobha Developers) in an interview with Reema Sharma of Zee Media talked extensively on the real estate scenario, buyers and investors' sentiment, announcement on housing sector in 2014 Budget and expectations from the new government.
 
How does the Indian realty sector rate the report card of Narendra Modi government's first 100 days in office?
 
The Prime Minister’s performance, his policies and the sentiment continue to be broadly positive. The real estate industry has welcomed Narendra Modi’s steps to boost the sector. Reduction in interest rates on home loans, lowering the size of FDI in real estate, announcement to develop 100 smart cities, formation of REITs are definite steps that will put the real estate industry on the positive track.
 
How will Real estate investment trust (REITs) regulations help investors, developers and buyers?
 
The introduction of REITs is a much-awaited, welcome move from the government. It is  step that will provide a new source of funding for cash-strapped developers that are struggling to reduce debt. Reducing the minimum commercial real estate asset sizes from Rs 1,000 crore to Rs 500 crore for listing REITs in India is likely to encourage many mid-sized development firms to consider this avenue. It will enable developers to both unlock value and create liquidity.
 
On the other hand, REITs will reduce individual speculation in real estate assets and allow for more professional investment and management in the sector. REITs will help buyers benefit from real estate price appreciation without any hassles associated with buying and maintaining properties.
 
Investments by REITs will also indirectly reduce the exposure of banks to risky assets as they have provided construction finances to many projects.
 
Will the housing loan exemption announced during the Budget 2014 promote housing?
 
The Budget had some good news for home buyers with the government increasing the deduction limit for interest on loan for self-occupied properties from Rs 1.5 lakh to Rs 2 lakh. This will not only help home borrowers save more money but also boost the real estate sector, which in the last couple of years has seen a slump in demand. Depending on the tax slab, a person could save between Rs 5,000 and Rs 15,000 a year. This will tempt a lot of first-time buyers at the entry level.
 
How are two tier cities performing vis-a-vis category one cities?
 
The residential market of the top six cities in India namely Mumbai, NCR, Bengaluru, Pune, Chennai and Hyderabad, have been witnessing extreme volatility for the last two years in terms of demand and supply. While 2012 showed positive growth, there was a sudden dip in new projects and absorption in 2013. All these cities witnessed a steep fall in absorption in 2014 as well.
 
While there is a dearth of global investments in Tier 2 and Tier 3, the real estate market is showing a higher growth rate in these cities. In spite of low public investment, these cities have been successful in selling both residential and office space. Currently, the Tier 1 cities have started to get saturated and affected with over population. Hence, the growth in Tier 2 cities offer huge potential as they already possess the basic amenities required to establish businesses. The ample availability of resources like land, skilled labour with the provision of connectivity will further help growth of real estate in these cities.

How is the current overall housing scenario?
 
The decline in sales in the six major cities the overall market scenario showed a steep decline till 2014 1st quarter, but with a stable government at the Centre, sops for the housing sector in the 2014 budget and all the subsequent decisions taken by the government in order to revive economic growth seem to change buyers sentiments from negative to positive. Sales are expected to rise by 20 to 26 percent in the second half of 2014. New projects are expected to be launched in NCR and other metro cities as well as Tier II cities. The sentiments of developers and investors also look optimistic because of the government’s decision to push reforms in a big way.
 
It would be rather interesting to witness implementation of this budget and significant growth in the economy that it predicts. With a Budget that equates to a 5.4 percent-5.9 percent increase in GDP and an estimated 4.1 percent fiscal deficit, the New Year looks rather promising.

 



First Published: Saturday, August 30, 2014 - 13:52

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