It seems a bit ironic that despite contributing five per cent out of the total 14 percent from the infrastructure sector to the Gross Domestic Product (GDP), the real estate sector still awaits industry status recognition.
It is a known fact that companies involved in constructing dams, roads, heavy-duty plants are given industry status; the construction sector also provides employment to many. The sector is known to generate numerous employment opportunities, besides benefiting more than 250 ancillary industries, directly or indirectly.
Moreover, the sector also converts raw materials into finished products in the form of buildings, and housing is the basic need of every human. Yet, real estate is still to be recognised as a priority sector.
Developers point out that it’s high time the sector is granted industry status in line with the infrastructure sector. P Sreenivas Reddy, Executive Director, Rajapushpa Properties, says, “The present scenario of the real estate sector is highly unorganized. Industry status is definitely going to help not only the people from the sector but scores of other people directly or indirectly allied to the sector. The value of residential properties is also likely to come down as industry status will mean tax benefits and reduced stamp duty for a buyer. So this will affect the overall price of a flat.”
There are a number of benefits the sector would be entitled to once it is announced as an organized industry. One of the prime benefits would be to obtain funding from the financial institutions. At present, banks seem reluctant to sanction loans to builders as the projects depict a dicey proposition. Soaring prices of raw materials and labour has resulted in the sky-rocketing of prices of projects. Hence, the developers need financial aid from the banks to complete their project. But it is not always a positive response that these developers receive from the banks. Many a times, developers have to turn to private financers who levy heavy interest rates thus making home-buying a costlier affair.
After getting industry status at par with the infrastructure sector, the real estate sector will be recognized as a priority sector, especially by the Reserve Bank of India (RBI) and other banks, including financial institutions, observe developers.
Sreedhar Reddy, President, NAR India, says, “In India, an industry has a separate status and advantages. Industries are given subsidies by the government. Although in India real estate has been a vital contributor to the GDP, it has not been given industry status. Getting ‘industry’ status will help in easy sanction of loans for projects. It also means that the rates of interest will stabilize once it’s given the identity of an organized sector.”
On another vital note, he adds that, “Sales don’t actually take place during the construction stage. Hence, developers find it difficult to complete their projects without funding from the banks.”
Since the real estate sector has for so long been an unorganized sector, it becomes risky, making the project financing difficult for the banks. Additionally, Lalit Kumar Jain, CREDAI National President and Chairman and Managing Director, Kumar Urban Development Ltd (KUL), points out that more than the industry status, they are longing for an infrastructure status.
Apart from funding, the approvals from the government also will become easier with if bestowed an industry status.
Significantly, the real estate sector after being pronounced at par with the infrastructure sector will change the perception of the State and the Central government, say realty experts. According to Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India, the health of a nation’s real estate sector is often seen as index of its overall economic health, and this needs to be taken into consideration. “There is no doubt that the real estate sector is indeed an industry for all practical purposes. The real estate sector is a major driver of economic growth and is the second-largest employer, contributing a significant component of the GDP. Industry status will help the sector access funds at more competitive interest rates and facilitate more amenable lending norms. Granting the real estate sector an industry status will allow it to gain access to organized funds from banks and financial institutions.”
They get easy funding at better rates of interest making financial transactions more transparent there by the housing can be made affordable. Developers will benefit from getting permissions in time, and using the more accessible financial assistance.
Srinivas Jala, Sr. Manager Sales, Keerthi Estates Pvt. Ltd, says, “Real estate generates employment and creates entrepreneurial opportunities thereby developing the inclusive economic growth and so has to be given the status of Industry.”
Additionally, due to the non-industry status, there is no tab on the source of flow of money into the sector. It is felt that once granted an industry status, the sector would become more transparent. It will be elevated to the status of a real corporate, in the process eliminating malpractices and black money making the sector more disciplined and ethical.
Besides, it would provide a safety net to financial institutions, job stability to workers and staff as industrial law would be applicable in that case. Moreover, foreign investors would be attracted to invest money in a particular project if an industry status is given. This would certainly benefit homebuyers and all other stakeholders at large in the sector. “It will be a win-win situation for both realtors as well as homebuyers,” says Jain.
Source: Times Property in The Times of India, Hyderabad