Saturday, February 4, 2023

On firm ground

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The realty sector has seen a lull. But the NDA government has already cleared legal hurdles to big-ticket investment projects to boost investment and revive growth

By Raja Awasthi

The real estate and housing sector has witnessed a mixed bonanza in the last one year. On one hand, the beleaguered sector was plagued by low demand and slow sales as it struggled to cope with economic slowdown, heavy debt and liquidity crunch, on the other, it’s hopeful that the NDA government will bring in reforms which will help it regain its lost glory.

In fact, in the last few months, the sector has seen a spate of legislative initiatives from the government, many of which are currently being debated in parliament. The only industry demand pending is that of exemption of Dividend Distribution Tax (DDT), which would be an incentive for real estate investors and developers looking at raising capital via the Real Estate Investment Trust (REIT) route. At a time when the realty sector is struggling for alternative avenues of funding, REITs are likely to improve liquidity (a company’s ability to pay bills) in the commercial real estate market.


A sign that the sector is reviving can be gauged from the fact that telecom giant Bharti Enterprises has entered it and is planning to launch its first residential project as a vertical smart city. Asked why the group was entering the residential realty sector during a slowdown period, SK Sayal, chief executive, Bharti Realty, said: “The real estate segment in Bharti started with meeting in-house requirements—the Airtel Center in Gurgaon, its headquarters in Vasant Kunj, etc. With various rental-yielding assets, getting into residential real estate was a natural offshoot and we decided to diversify in this segment. We will be choosy as far as location and selecting our partners are concerned. The market has forced people with huge tracks of land to look for players like us.”

SK Sayal, chief executive, Bharti Realty

Adds Anuj Puri, chairman and country head, JLL India, a firm offering specialized real estate services: “There are several reasons for the prolonged downturn in the real estate market. The first is slack demand for homes. This can be attributed to a mismatch between pricing and affordability in some cases and depressed sentiment at a larger level. While the sentiment is picking up, the pricing-affordability mismatch in a city like Mumbai is tougher to crack as it depends on developers’ willingness to bring down asking rates.”

Industry pundits believe that many cities have seen considerable oversupply, which in turn, has depressed investor interest as the potential for short-to-mid-term returns is minimal in such an environment.

In cities like Bangalore and Pune, the market has seen a healthier trend—though its performance is still impacted by macro-economic variables. In Hyderabad, on the other hand, political instability has led to decreased buyer and investor interest.


According to a study of the India realty market by CBRE South Asia Pvt Ltd, a leading real estate consultancy, over the past few months, housing demand has weakened against the backdrop of higher property prices and interest rates. Following the Central Bank’s announcement of a status quo monetary policy in early April, a few nationalized and private sector banks have cut lending rates. Further reduction in lending rates is likely to significantly improve sluggish property sales in the short-to-medium term.

However, leasing activity rebounded last month with close to two million sq ft of office space being absorbed across leading cities, the highest quantum seen in the first four months of 2015. Demand for office space remained strong in Mumbai, which accounted for around 30 percent of the total office space transacted during the last two months, followed by Chennai and Pune that together contributed around 47 percent. In fact, all Tier-I cities saw an increase in space take-up, barring the National Capital Region and Bangalore, which observed a dip in occupier demand.

In the backdrop of infrastructure projects worth `6.26 trillion shelved, abandoned or stalled in 2013-14, the government’s top agenda is to get projects implemented with a view to boosting investment and reviving growth. This is in line with the BJP’s poll promise of creating a conducive, enabling environment for doing business.

The Modi government has already cleared big-ticket investment projects worth `21,000 crore held up for decades. In the coming months, one may expect several investor-friendly policies like liberalizing External Commercial Borrowings, single-window clearance, credit rating model of residential real estate projects and escrow account model through levies on cement, steel, etc, to fund affordable housing.


With the Modi government embarking on administrative reforms to provide better governance besides investor-friendly policy initiatives, investors should stop fearing volatility and think long-term. As a right beginning has been made with this budget, both domestic and foreign investors have reason to buy Modi’s promise.
However, there is a general perception in the real estate market that whenever a

BJP-led government comes to power at the center, it affects the realty sector in negative ways. However, experts disagree. “This is not true. The economy has, in fact, seen a significant turnaround since the new government came to power. Inflation has decreased visibly and the renewed focus on infrastructure as well as several other initiatives have helped the real estate market regain firm ground. The problem is that several policies such as the Real Estate Regulatory Bill, which was initiated by the previous government, have not seen firm incorporation as yet because of resistance from opposing parties,” says Puri.

With hopes riding on the Modi government on all fronts, realty too wants to be on firmer ground in the months to come.

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