Here’s Why The Real Estate Sector Is Rooting For Industry Status In Budget 2019

When Finance Minister Nirmala Sitharaman presents her maiden budget on July 5, 2019, developers expect her, among many other things, to confer industry status on the real estate sector, a long-standing demand, which was partially fulfilled when the affordable housing segment received industry status in 2018. "It is time the real estate sector gets industry status. This will enable developers to raise funds at lower rates and reduce their cost of capital, which will eventually have a bearing on overall project cost," explains Kushagr Ansal, director, Ansal Housing. 

This opinion seems almost unanimous in the industry. “From a financial aspect, industry status will imply that the provisioning norms for lending will change. The limits set for banks to lend for the sector will increase. This implies there will be more funds at cheaper rates and an increased fund supply for the construction business,” shared Rakesh Kaul, chief executive officer, Experion Developers, in an earlier interview to PropGuide. 

Does the real estate sector want industry status for funding only? 

An industry status would bring about major transformation in the outlook and nature of the sector, says developers’ body NAREDCO. It will help the sector access central/state subsidies in case developers are building in the backward regions/north eastern regions and raise ECBs, it adds. The status update will also open the doors for external funds waiting to flow into India, Kaul pointed out. According to Tulip Infratech CMD Parveen Jain, an industry status would attract large companies and also inculcate corporate culture and industry discipline, which will benefit the economy in general and consumers in particular. Since the real estate sector is the second-largest job creator after agriculture in India, on which 25 ancillary industries are dependent, the demand seems justified.   

Why does the real estate sector need industry status now  

Private estimates show real estate projects worth Rs 3.3 lakh crores are stuck in seven major cities of the country. Funding is one of the main problems India’s real estate sector has been dealing with since 2008, when a meltdown resulted in markets across the globe crashing. Real estate developers, who didn’t see the writing on the wall, got busy making plans to launch new projects, betting heavily on the potential India’s booming property market showed. What ensued were market conditions that went from bad to worse, and developers failed to deliver the promises they made to millions. This situation was worsened by a slow approval process, thanks to the lack of a single window clearance system.  

In his previous term, prime minister Narendra Modi had promised to extend help to end homebuyers’ issues. This budget provides him the opportunity to fulfill that promise.