6TH NOVEMBER, 2019
|RAJYA SABHA TELEVISION|
THE BIG PICTURE: REVIVING REAL ESTATE
Finance Minister Nirmala Sitharaman has indicated that the next round of reforms is likely to be focused on the Real Estate sector. Piling inventory, funding issues for developers and stagnant or drop in property prices are some of the key problems faced by this sector. As of 30th June this year, 421 real estate developers are under the corporate insolvency resolution process. Finance Minister has said that the government is working closely with the Reserve Bank of India to address the issues faced by the real estate sector.
The Union Cabinet has approved the creation of an Alternative Investment Fund (AIF) of Rs 25,000 crore to provide last-mile funding for stalled affordable and middle-income housing projects across the country.
All affordable and middle-income housing projects that are net worth positive and are registered with the Real Estate Regulatory Authority (RERA) and that have not been deemed liquidation-worthy will be eligible.
Significance of the real estate sector to Indian economy
- It is the second most employment provider generally to the non-skilled workers
- It is placed at second position in terms of its contribution to the GDP of India.
- It provides affordable housing to accommodate the increasing population of the city.
- Real estate plays an important role in making the dream of “smart city” come true.
- It acts as a niche sector for the educational institutions, commercial hubs, etc.
Challenges to the real estate sector
- Houses built for weaker sections exchange hand very soon so the real motive of building house for the weaker section is defeated .so there is a problem of implementation.
- Funding: The real estate industry is a sector in which the cost of work creates an initial obstacle in the development of the projects in focus. Developer’s majority of the time face challenges with funding. Due to the increase in the number of frauds, commercials banks have become more restrictive in lending money to the developers.
- Lack of your renowned name in the industry also does not allow developers to access funds at an affordable rate.
- Project delays: To commence any housing project in a metro city, a developer needs to complete many approvals for starting the construction. Developers usually have this tendency to utilize the funds of one project for another due to some underlying factors.
- Many developers start advertising their upcoming project beforehand to attract customers. However, due to lack of funds, litigation, failure to procure necessary licenses many construction projects stop halfway which causes a delay in completion of the project on time. This creates issues for the buyers who fail to get their property on time and are faced with the burden of repayment of their loans.
- Speculation in Land and Real Estate Prices: The prices of land and real estate in India have increased exponentially in last decade and causes overpricing of commercial or residential property. In recent times, the real estate is the most favorable destination for investment in India and far ahead than equity or gold. Further real estate agents or brokers buy or sell property frequently with their own investments and cause of surging prices in property.
How the bailout package will help the real estate sector?
- The real estate sector involves many core industries like cement, steel etc. so infusing money to the real estate sector will give impetus to other industries also.
- It will increase the income of the large masses employed in it and hence will increase the consumption pattern and will boost the economy.
- Slum development
- It will align with the government target to provide housing to all by 2022.
- Local planning & assessment of what kind of flats needed & where.
- Government money to those who genuinely need & not to insolvent cases.
- Focusing on basic issues like creating infrastructure , connectivity to main roads, water or electricity which is preventing homebuyers to move in to their flats.
- Singaporean model: Government builds & gives it to developers .just like NBCC took over JP infratech projects recently.
- Creation of Stress funds / restructuring funds.