While the the stock markets, the corporate world and a large section of the country’s citizens are celebrating the election verdict, 45-year-old Shailesh Singh, a Delhi-based executive, is a worried man. Singh has been hunting for an apartment in the National Capital Region (NCR) for the past six months but has not been able to zero in on one. Now he is afraid that in the euphoria generated by the Bharatiya Janata Party’s (BJP) decisive victory, real estate prices may start rising again, making his purchase more expensive.

Why prices won’t move up

Singh’s worries might be premature. Realty experts are of the view that while there might be some euphoria-driven rise in transactions and a marginal rise in prices, this will dissipate soon. “It will take another 12-odd months before prices begin to rise within the sector. And that will happen only if the new government has a successful first six months and its initiatives put the economy on a higher growth path,” says Anshul Jain, chief executive, DTZ India.

One reason why prices may not rise immediately is that they are already very high in most major metros. The economic slowdown has had an impact on salary revisions, and hence on urban buyers’ purchasing power. “Economic activity has to pick up and purchasing power has to rise before we see more demand in the housing sector,” says Anshuman Magazine, chairman and managing director, South Asia, CB Richard Ellis. High interest rates are another deterrent. “In the near term, the new government can’t down interest rates, especially with inflation reining high,” adds Magazine.

Urgently needed reforms

While the new government can’t engineer a quick revival of the real estate sector, it can take several steps that would have a salutary impact in the medium to long term. One, it could expedite the process of granting approvals to real estate projects. “We expect the new government to be more efficient in granting approvals to real estate projects,” says Lalit Kumar Jain, chairman, Confederation of Real Estate Developers’ Association of India (CREDAI). Developers complain that the authorities too should be made accountable for not granting timely approvals. But remember that since real estate is a state subject, the central government can at best create a model of best practices for offering quicker clearances and persuade state governments to adopt it.

The new government also needs to get the Real Estate Regulation and Development Bill passed. “By making developers more accountable, the Bill will revive trust in the sector. Low trust in developers’ ability and intent to deliver a quality product on time is one reason why buyers are staying away,” says Sanjay Sharma, managing director, Qubrex, a Gurgaon-based real estate consultancy. However, some of the harsher provisions of the draft Bill need to be modified. Currently it says that if a developer doesn’t comply with certain rules, he could be jailed. Experts feel that it would be more prudent to punish an economic offence with a penalty rather than treat it as a criminal offence.

The slowdown in sales has caused a severe cash crunch among developers, forcing them to borrow from non-banking financial companies (NBFCs), private equity players and private lenders at high rates, thereby making housing more expensive. “Fund flow to real estate from banks and housing finance institutions needs to improve,” says Kumar. This will happen only if RBI relaxes the provisioning norms and caps applied to realty lending.

The Securities and Exchange Board of India had released the draft SEBI (Real Estate Investment Trusts) Regulations, 2013. “Making REITs a reality will make more funds available to players,” says Jain of DTZ. The new government needs to give the required tax exemptions to REITs at the earliest.

Tax fillip

A couple of tax benefits would provide an immediate fillip to the real estate sector. The UPA government had allowed an additional tax deduction of `1 lakh to persons taking a home loan of up to `25 lakh. This benefit, however, expired on 31 March, 2014. Also, the government had introduced the provision of tax deduction at source (TDS) at 1% on transfer of immovable property priced at `50 lakh or more. “Extending the tax deduction by another year and levying TDS on properties priced at `1 crore or more will provide immediate fillip to the sector,” says Sachin Sandhir, managing director, RICS, South Asia.

Infrastructure push

The new government could provide an indirect but strong fillip to the real estate sector by improving urban infrastructure. “Providing urban infrastructure will release more land for real estate development, increase supply, and thereby help cool prices in the major cities,” says Magazine.

What should you do?

If, like Singh, you too are hunting for a property, the general elections and the formation of a new government at the centre don’t change the situation much for you in the near term. Unlike the stock markets, which are liquid and nimble, a turnaround within the real estate market takes time. So keep looking diligently and don’t lose sleep over prices rising immediately.

Source: Economic Times

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