A transformative era for the Real Estate Industry

The upsetting and disruption caused by COVID-19 pandemic is humungous. We are facing one of the toughest of the situations in our lifetime. Despite this, we are certain that the indomitable human spirit will emerge victorious. Amidst death and fear we have innumerable images of the steely determination shown by our doctors, nurses, police force, NGOs, government officials and private businesses who are making a difference to the society in these challenging times. 

Taking the lead in the subcontinent, Indian government had announced a package of Rs 20 lakh crore. This bailout package was much needed. The government has announced various measures towards improving the liquidity in the market as well as strengthening the healthcare and financial systems for the nation’s well-being. These are steps taken in the right direction. But this alone is not enough. There is an urgent need to resuscitate the real estate sector as well.

It is well known that the real estate along with agriculture are two crucial sectors that are major contributors to the growth of the Indian economy. Both sectors have been a steady source of employment to a large majority of urban poor. Recognizing the trends and obstacles in the market, the government has introduced extensive schemes that will benefit both developers and buyers.

According to a recent report by CRISIL, about 8.32 lakh beneficiaries have taken subsidy under Credit Linked Subsidy Scheme (CLSS).  Of these beneficiaries, almost 70% belong to the economically weaker section (EWS) and low- Income Group (LIG). The extension of CLSS is an action-oriented step towards ensuring job creation and stimulus for demand and boosting the supply chain for the revival of affordable housing segment.

Building on India’s strength as a manufacturing hub, the Prime Minister’s “Atma Nirbhar Bharat” mission will provide significant boost to numerous sectors in the economy. Bringing the focus back on land and labour reforms will help small businesses, migrant labours, and farmers alike. This initiative of making India a self-reliant economy by supporting local manufacturing, being vocal about local and making India Global, will help revive the GDP in the coming years.

All these steps have eased the current situation, preserved financial stability, and assured homebuyers about delivery of their booked houses with revised timelines. These targeted steps will keep credit flowing into vital economic areas that would help stimulate the economy. The fact that IMF's projected GDP growth of 1.9 per cent in India is the highest in G20 shows the resilience of the country in challenging times.

The current pandemic has also triggered an immediate technology disruption. Companies are thinking afresh and innovating at a faster pace and adopting technology to become resilient. The innovative use of robotics, automation and artificial intelligence, coupled with the new age of the 5G telecommunications, will emerge as the next wave of disruption in the real estate sector. Companies who have already grown on the first wave of digitalisation will be able to capitalize and adapt to these next steps. This wave has not only impacted the sector to adapt technology, but the consumers too are responding positively to this new normal such as video walkthroughs, online bookings, payments, and also demanding for the same.  

The real estate market has shown immense resilience in the last few years. In a recent report by NARDECO and Housing.com, real estate is considered the most preferred form of investment at 35%, followed by gold (28%); fixed deposits (22%), stocks (16%).

At a recent event by US-India Business Council our Prime Minister invited US businesses to invest in India’s infrastructure sector and give a fillip to the economic revival from the slowdown and highlighted the global optimism towards India. While the government has taken many positive initiatives, some thoughtful additional measures by the government will hasten recovery of the sector.

The NBFCs and HFCs are a major source of financing and passing repo rate cuts from banks to borrowers is essential, as the sector contributes almost 11% of bank’s credit to the GDP. Keeping the larger concern of the realty sector in mind, reducing the maximum rate of interest on new home loans to 5% for the next five years will play a crucial role towards raising consumer sentiments. To further ease the uncertainty, a scheme for homebuyers can pay only margin money with no EMI for 24 months by RBI will help the survival of the industry. One-time (loan) restructuring, additional institutional funding, waiver of penal interest, policy innovations for triggering consumer demand and controlling cartelization of raw material will help the sector. If these steps are taken in a calibrated manner and in time, the real estate sector will bounce back with immense ripple effects thus entering into a transformative era.