Indian builders need better financial support from the government. Why?
India’s real estate sector, which represents a $ 200 billion market, is slowly emerging from the disruption caused by the coronavirus pandemic and is on track to grow into a $ 1 trillion industry by the end of 2030, said the Ministry of Housing and Secretary of Urban Affairs (MoHUA), DS Mishra.
At an event hosted by the industry association, CII, DS Mishra informed that the real estate sector is currently worth $ 200 billion, and is estimated to reach $ 1,000 billion by 2030. It further mentioned that the sector provides jobs for nearly 5.5 crore people in 2019, and is expected to provide jobs for 7 million people soon.
The history of real estate growth is unscathed, despite the pandemic invading the country, Mishra said, adding that around 88 crore of people will reside in urban areas by 2051 from the current 46 crores. , thus generating a huge need. for homes, roads, highways, electricity and other infrastructure and services.
Emphasizing the importance of real estate in the Indian economy, he pointed out that the sector generates demand for nearly 270 industries, including cement and steel.
India’s struggling real estate sector
The recently launched Model Tenancy Act would make rent laws more impartial and help open up a large number of units that could be rented out.
Mishra explained that the law is forward-looking and would not change existing leases.
Neel Raheja, Chairman of K Raheja Group, said that despite the challenges, the industry is on a growth path and new opportunities are emerging from sub-divisions such as data centers, warehousing and logistics.
He further expressed his determination that the industry will grow to a size of $ 500 billion in the next 3-4 years.
While exploring support for the industry, Raheja highlighted the concern of the high risk weight given by the RBI to the real estate sector which is becoming an issue in raising affordable finance. There are constraints on Infrastructure investment trusts (InvITs) and Real Estate Investment Trust (REIT) financing, land financing, foreign portfolio and External commercial loans (BCE) which needs to be studied to allow the real estate industry to attract low cost financing for the housing sector.
The State of India’s Real Estate Sector
India’s real estate sector has continually faltered under the influence of cash starvation, long before the coronavirus pandemic hit the sector like a thunderbolt from the sky, further degrading the situation.
As a downturn in activity and a multi-year bankruptcy began to terrify even high-profile players in the real estate industry, the looming non-bank financial sector crisis that began in 2019 has made lending extremely difficult for investors. builders, especially small and medium-sized businesses. those.
It should not be forgotten that the annual demand for construction financing is Rs 60,000 to Rs 70,000 crore. But following the NBFC crisis, several manufacturers are unable to lend. The pandemic has made the situation worse.
In the aftermath of the 2020 pandemic, various programs and support measures were announced by the center and the Reserve Bank of India. Without these measures, the opportunities for improvement from all of these multiple accidents could have diminished even more with the growing threat of a coronavirus pandemic in 2021.
In addition to keeping interest rates stable by keeping the repo rate at 4%, the RBI has also approved loan structuring opportunities for small and medium businesses as part of its’Restructuring 2.0‘declaration in May 2021.
But we must also take note that the banking regulator has also given clear guidelines to lenders to avoid risky investments, by putting in place stricter borrowing standards. As a result, there haven’t been many improvements for small and medium builders in the real estate industry.
In view of the current crisis, the industry organization CREDAI has sent an open letter to Prime Minister Narendra Modi, demanding the necessary measures to improve the weakened real estate sector, the second largest employment sector in India after agriculture. According to the data, more than 52 million people are engaged in the real estate industry in India.
While stating that the current situation looks a lot like the 2008 financial crisis, CREDAI called on the government to offer “one-off loan restructuring to help builders weather the crisis, which the banking regulator has done to help builders. industries to cope with the devastation caused by the global economic crisis in 2008.
The real estate sector is also of the opinion that such restructuring is taken care of for all accounts which were regular as of December 31, 2019.
Additional support for the sector in the form of institutional funding would also be an important way to strengthen a sector that can lift the economy out of the current troubled situation. It is important to remember that the SBI emergency line of credit is already there to help builders weather the crisis. CREDAI believes that more banks and NBFCs will be allowed to offer this facility.
Facilitating the sector through increased liquidity support is extremely crucial in this crisis, as buyer sentiment regarding residential housing is seen as positive, an event which suffered a severe defeat between 2014 and 2019 due to numerous bankruptcy cases. promoters and project delays, in particular in the RCN. Marlet.
New hopes in the real sector
In a consumer survey conducted by Housing.com during the September-December 2020 quarter, 43% of respondents chose real estate as their preferred asset class. Time deposits and stocks were participants’ second and third preferred investment options, respectively.
On repeated supports, the sector could certainly emerge from the crisis sooner rather than later. The first signs of this are already evident in the fact that a total of 21,839 new units were inaugurated in the eight housing markets of India during the second quarter of the year 21, indicating an increase of 74% year over year, according to data available with PropTiger.com.
It also suggests that developers in India are eager to go the extra mile to capitalize on the positive attitude of buyers and are rolling out new projects despite a difficult time.
Perhaps now is the time for the government, which has repeatedly stressed the vital role that real estate plays in the development of the global economy, to move forward and lead the debate by proposing more financing programs for cash-strapped Indian builders.