The current global financial
crisis has badly hit the real estate sector in India. All construction
activities have virtually come to a standstill even as the builders are facing
difficulty in selling out the existing inventory. However it’s still remains
one of the most important sectors of the economy. After agriculture, the real
estate sector is the second largest employer in India.
Moreover, the real estate
industry has significant linkages with other sectors of the economy. The sector
has more than 250 associated industries and hence any investment in the sector
has a cascading effect on all associated industries. An investment of one rupee
in this sector leads to 78 paise getting added to India’s GDP.
Even before the current economic
crisis came to head, the Indian real estate sector was
witnessing some major policy bottlenecks, most of them related to the
investment opportunities and taxation. According to industry experts, the
sector is overburdened with taxes ranging from service tax; value added tax,
central sales tax and excise duty on immovable property.
Besides there is an urgent need
of suitable amendments in the Foreign Direct Investment (FDI) guidelines in the
sector. At present, FDI is allowed only in Greenfield projects in India. There
is a need to allow FDI in companies which are involved in real estate
development. This will open up new sources of funding for the real-estate
companies. The guidelines regarding FDI in infrastructure sector must also be
more clearly defined.
There are several measures that
the government can take to help the sector maximize its growth. Since housing
for all is one has been the aim of many central and state government schemes,
the government should confer infrastructure status to the housing sector. This
move will help the real estate companies in getting access to low cost
institutional funds.
The government should focus on
evolving a rational structure of stamp duties that have to be paid on the sale
and purchase of land and housing properties. In some states in India, the stamp
duty is as high as 14-15 per cent. The stamp duty on property should be
reduced to a maximum limit of 3 per cent and all states in India should have
uniform stamp duty rates. This move will help to reduce the property rates and
bring more transparency in transactions.
The laws dealing with housing
projects also need to be streamlined in order to give a push to the
developmental activities, particularly in urban areas. Laws like Rent Control
Act and Urban Land Ceiling and Regulation Act are highly restrictive and must
be repealed. All efforts must be made to restrict growth of slums in urban
areas and develop them into hygienic colonies. There is also a need of suitable
amendments in the Agriculture Land Ceiling Act and also the Land Acquisition
Act of 1894.
Another factor that hampers the
growth of real estate sector in India is the lack of basic amenities like water
supply, roads, power and sanitation. Government should make efforts to increase
partnership with private sector companies in building these basic amenities.
The participation of private players in infrastructure sector will, apart from
bringing latest technology and management practices, ensure timely completion
of the projects.
One area where India has
constantly lagged behind is ensuring single window clearance for private
companies. The situation is particularly bad in the real estate sector
where clearance is required for nearly 10 different agencies before the work on
the project can be started. The absence of single window clearance not only
discourages investments but also leads to delays and corruption. Government
must ensure that the practice of single window clearance for the real estate
projects is implemented as soon as possible.
Thought the government is India
is moving forward on some of the reform measures suggested above, the process
of must be made quicker. If given proper environment, the real estate sector
can emerge as the driving force of the Indian economy.
