Budget 2024: Can Industry Status For Real Estate Sector Help India Become Third Largest Economy In The World?

The Narendra Modi government will present its last budget of this term on February 1. While India is looking to become the third-largest economy in the world in the next few years, government policies and budget provisions will certainly play a key role in it. At present, the global economic landscape is dominated by the United States of America, China, Japan, Germany, and India. The United States leads the pack with an impressive GDP of $26.9 trillion while closely behind, China holds the second position with a robust GDP of $17.7 trillion. Germany, with a GDP of $4.4 trillion, and Japan, with $4.2 trillion, contribute significantly to the global economy. India, with a GDP of $3.7 trillion, underscores its growing influence and economic potential, making it a key player in emerging markets. According to projections from S&P Global, India is anticipated to ascend to the position of the world's third-largest economy by the year 2030. However, can the real estate sector help India achieve the target? 

Current Size And Future Projection

As per industry estimates, the market size of the real estate sector was touted to be approximately $180 bn as of FY 2020 with current projections to touch USD 650 bn as of FY2025. "Back in FY 2017, the real estate sector consisted of nearly 6% of the Indian GDP while in FY 2025 it is estimated to be 13%. Real estate, which is an integral part of the economy, will be one of the large contributors to the Indian economy since we can already see significant growth across various segments of real estate, particularly the housing sector," said Anuj Puri, Chairman - ANAROCK Group.

Role Of PropTech

Onkar Shetye, Executive Director at Aurum Proptech, said that the Indian real estate sector is set to grow to $1 trillion by 2030, owing to increased demand for homes, office spaces, manufacturing hubs and infrastructure.  "For creating developments at such a large scale, the institutionalization of technology across all stakeholders, including capital allocators, developers, service providers, and consumers, will be inevitable. PropTech will play a pivotal role in the sector witnessing accelerated growth and throughout all the asset classes and usage types, the Indian PropTech sector size could be $100 billion by 2030," he said.

Policy Decision Push

Experts believe that several policy decisions taken by the Narendra Modi government including the digitization of land records and real estate transactions under the Digital India Land Record Modernisation Programme (DILRMP), transparency in real estate transactions under demonetization and Goods and Services Tax implementation, regulation of real estate development and licensing of service providers under RERA (Regulation and Development) Act, 2016), and reforms of the rent control act under the Model Tenancy Act 2021 has increased the foreign institutional inflows to $26.6 billion between 2017 and 2022. 

Industry Status Demand

Currently, only the affordable segment in the real estate sector has been accorded industry status by the government even though it (industry status) has been in long-pending demand by the real estate sector. Year after year the sector has been demanding industry status for Indian real estate given that the sector has been one of the major contributors to the Indian economy. "By being accorded the status, the sector will benefit both legally and administratively including capital and interest subsidies, a single-window or fast-track approval process and various exemptions or relaxations from stamp duty and other levies. Given that financing at lower rates is one of the major hurdles for many developers, particularly the smaller ones, industry status will help iron out the issue of high interest and thereby help keep prices also under check," said Puri.

G Hari Babu, National president of NAREDCO, said, "Industry status for real estate would be a key milestone if approved by the government. Firstly, it would help in getting easy and low-cost loans from banks. Further, it would also open up more avenues for finance for the segment, including equity investors working as a catalyst for the sector."

Is There Any Regulatory Hurdle?

Venkat Rao, founder and managing partner, Intygrat Law Offices LLP and an RERA expert feels that the real estate sector is over-regulated. "There is a need for harmonisation which at times is a complicated process considering land is a state subject and states have different approval processes though broadly being the same.  However, the issue of Title certification is still a work in progress. Further, the opaqueness in real estate dealings by unorganised players and poor enforcement by authorities leaves a huge gap in having a clean and standard format in this industry, thus complicating the process. This appears to be a deterrent factor for the real estate sector in gaining an Industry status," said Rao.

Therefore, while the real estate players badly want the government to accord it an industry status, there appears a need to bring in more transparency to make the sector a strong pillar of the Indian economy.