What to expect from the centre to boost the real estate sector?
September 25th, 2019
The Real Estate Sector in India is in the midst of a slowdown. What can the government do to boost the market? A few of these proposed measures, if implemented, can see the real estate sector through a tough time.
The government has taken notice of the slowdown in the real estate sectors in recent years. It is taking measures to overcome the present difficulties and provide the real estate sectors with much-needed relief. What shape will these new measures take?
Due to rising construction prices, contractor defaults, and projects running out of funding midway, the real estate sector is in trouble. The government has been taking meetings with various stakeholders and has promised measures that will offset the current problems. What can we expect from the government?
The Government is proposing steps to help solve the slowdown in the real estate sector. There are a number of steps that the government can take to ease the burden on the developers and the investors. We have taken a look at some of the steps which can be expected from the government.
Real Estate is one of the oldest industries in the world. It is also one of the biggest contributors to the GDP in India. It is estimated that India’s real estate sector will be worth over one trillion dollars by the year 2030. Since 100% of foreign direct investment was allowed in the real estate sector in 2005, the sector has witnessed a much-needed boost. In a single year, from 2017 to 2018, the sector witnessed foreign direct investment to the tune of 1.2 billion dollars.
However, the real estate sector still needs the government to help it through the tough situation it faces today. The government is expected to take a few measures to help the real sector which is facing a slew of problems like an escalation of construction prices, defaulting on contracts by builders, and lack of liquidity in the sector.
Lowering Interest Rates
The home loan interest rate in India, at nine percent, is quite high. Most developed nations around the world have a much lower home loan interest rate ranging from two to four percent. The high-interest rate serves as a major detriment to the growth of the real estate sector in India.
A lot of prospective home buyers are not able to purchase homes or residential properties due to these rates. The government is in a position to provide a welcome relief in this regard by lowering the interest rates so that more people can become homeowners by buying apartments or villas.
It will also help developers if the government opens new ways for them to procure capital for their housing and development projects. Most developers need to rely on private lenders or non-banking financial corporations for their capital needs, which charge a higher rate of interest than standard bank interest rates.
Lowering the Cost of Stamp Duty
Another major deterrent to the ownership of housing in India is the extremely high rates of stamp duty in India. Any purchase of housing property or any kind of immovable property is taxable by way of the stamp duty in India. The stamp duty in India ranges from three to seven percent of the value of the property. The exact rate of stamp duty varies from state to state.
Currently, the stamp duty rates in India are flat in nature and do not change much depending on the valuation of the property in question. The government could explore a more responsive stamp duty rate. The stamp duty rate could be made higher for luxury properties whereas budget properties could be taxed at a lower rate. This would give a huge boost to the budget housing market which faces a lack of demand today, due to high stamp duty rates which are unpayable by the average prospective home buyer.
Creation of a Stress Fund
Recently, in response to the current slowdown in the real estate sector, various stakeholders have met with the Finance Minister asking for the creation of a stress fund dedicated to the real estate sector. Many homebuyers are stuck in India because the project in which they have invested their money has not been completed and construction has been stalled due to a lack of funding.
In order to provide relief to such homebuyers, the creation of a ten thousand crore rupees stress fund for real estate has been proposed. If the stressed fund comes to fruition, many apartment projects which have been stalled midway can be completed.
Prospective apartment and villa buyers can rest assured that despite setbacks, the housing market in India is robust and on a growth trajectory. Many exciting housing development projects are underway, and prospective homeowners can choose from a wide variety of real estate projects for a property that suits them best. It is expected that the government will soon take measures to help the growth of the real estate sector.