Why government policies matter

Analysing the potential effects of upcoming regulations on the Indian real estate market

Real estate in India contributes 8-9% of the GDP (gross domestic product). It is the second biggest source of employment after agriculture. There are over 200 industries including cement, steel, bricks, paints, and furnishings etc. which are interlinked to the sector. By 2030, Indian real estate is slated to reach a size of near about $1 trillion, making a handsome contribution of 13-15% in the GDP, which further highlights its significance in the Indian economic landscape.

As the Indian real estate sector plays a pivotal role in the economy, it is natural that the industry relies heavily on the policies and regulatory frameworks for its growth. Concentrated policy shift pinned on transparency and demand generation can positively impact the sector. On the contrary, policy loopholes can greatly undermine the growth.

ndia is embarking on a highly ambitious plan to revamp its overall infrastructure. It has an extensive infrastructure grid of over $1.4 trillion comprising world class amenities such as greenfield airports, railway corridors, smart cities, industrial parks, renewable energy facilities, high speed transit lines, suburban networks, and much more. It is building around 35-40 km of highways each day under the project, Bharatmala. Under Sagarmala, it is aggressively building new ports, modernising the existing ones, and creating Coastal Economic Zones (CEZ). India’s mega infrastructure drive naturally fuels demand for new houses, commercial offices, warehouses, cold storages, etc.

In 2016 regulatory bodies in India had taken an emboldened step in the form of RERA. It has been instrumental to bring balance in real estate and safeguard the interest of homebuyers. RERA has mandated developers to share transparent information, follow strict timelines for project delivery, use escrow account to avoid unlawful transfer of funds, etc.

The initiative has greatly reformed Indian real estate and has brought in increased transparency, thereby boosting the confidence level of buyers and investors.

Levied on July 1, 2017, GST (Goods and Services Tax) has greatly simplified the overall tax structure in Indian real estate replacing other forms of taxes such as VAT, service tax etc. Under GST, a 5% and 18% taxes are stamped on residential and commercial properties respectively. There is also a provision for developers to claim input tax credit which has helped in rationalisation of costs.

The government has shown its commitment towards offering an abode to every household in India. The country has been marred with acute housing shortages and policy impetus such as ‘Housing for all’ will be instrumental in bridging the gap. This will also boost the demand for affordable homes in India. As per the policy, by 2022 1.23 crore urban homes were stipulated to be delivered. In contrast 76.5 lakh homes have been delivered. Although, the ambitious plan has fallen short of the initially intended target, the numbers are still commendable and are a constructive step towards striking the right balance between spurred urbanisation, sustainability, and equitable growth.