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Real Estate Sector Sees Long Term Initiatives, But Quick Fixes To Boost

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The Indian real estate sector, which was already scuffling to re-emerge from the tumultuous structural and policy changes, has hit a major fallout with the COVID-19 outbreak.

The government-enforced lockdown has brought all economic activities to a jerking halt. The performance of the segment was muted owing to the prevailing liquidity crisis and subdued demands. Creation of the Rs 25, 000 crore fund and interest cuts did propel the industry towards recovery, to which beans were spilled by the pandemic. 

The structural changes were brought in after the damage was done. Implementation of RERA, GST, IBC focussed primarily on boosting liquidity in the segment. On the commercial front, demand for office space had been resilient and REIT had been yielding strongest rental assets until Covid-19 dampened the efforts. Nevertheless, the chief constraint had been rigid government mandate while the lenders were not accommodated.

While several steps had been taken to boost liquidity in the sector, there has been hardly any incentive for homebuyers to enhance their confidence post-Covid. There have been no speculations about the reduction of interest rates on new home loans to provide the much-required boost. Neither has been there any modification in the current GST regime for extended benefits, despite there being an urgent need for the same to boost demand amongst buyers. There being a reduction in interest rates, the borrowing rate for real estate developers still remains to be high causing much trouble. NBFCs have failed to pass on any benefits to the realtors owing to the integral set of problems. Consequently, private funds continue to increase the cost of lending, causing a demand-supply mismatch issue. Reduction for transaction costs could also help the industry sail a long way. 

The industry is likely to face an acute shortage of labour for completion of projects post the lockdown leading to further delay. Incentivising migrant labourers with increased wages and medical cover to aid the industry however there being no such stipulation as of now. In a nutshell, there remains the need for quick and short term measures to enhance the demand chain for the industry, for which realtors are keeping an eye on the government for instantaneous action.

Sonam Chandwani, Managing Partner KS Legal and Associates 

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