Bring in reality in real estate sector to improve economy: Vice President

There is a need for correction of prices; Cost of unit is going up because of middlemen;

Private sector and real estate developers must play a bigger role in promoting low cost housing;

Inaugurates the two-day CREDAI Conclave

New Delhi, March 16, 2018: The Vice President of India, Shri M. Venkaiah Naidu has said that real estate developers and builders to bring in reality in real estate sector to improve economy. He was addressing the gathering after inaugurating the two-day CREDAI Conclave, here today.

The Vice President said that housing in our country is as basic a need as food and clothing and the judiciary has broadly interpreted the right to life under Article 21 of the Constitution to include the right to shelter. He further said that everyone need to adapt to the transformation that is taking place in the realty sector by combining technology, innovation and entrepreneurship. Rapid urbanization coupled with migration from rural areas has led to a massive housing shortage, he added.

The Vice President said that with a view to easing the severe housing shortage, the Government has taken a number of measures to boost the affordable housing segment. He further said that challenges like lack of low cost land in urban areas and delays in clearances need to be addressed to boost affordable housing. Although the measures taken by the government have given a boost to affordable housing, there is a need for the private sector and real estate developers to play a bigger role in promoting low cost housing, he added.

The Vice President said that India should not compromise its hard-earned fiscal discipline in order to accelerate growth, adding that resorting to counter cyclical policies will not help spur sustained growth. He further said that real estate developers to focus on two important things for the families of the workers—health and education. These two should be given top priority and ensure that the workers and their families are not denied their basic rights in any manner, he added.

Following is the text of Vice President’s address:

“I am happy to be amidst you to inaugurate the two-day CREDAI Conclave. After a period of slowdown, the realty sector is showing signs of revival, which is good for the economy as construction industry and infrastructure play a vital role in propelling growth. The fact that real estate sector is the second largest employer after agriculture underlines the important role it plays in our economic growth.

I am sure that CREDAI, the apex organization of housing and habitat providers in the country with about 12,000 members, is well geared up to implement the best standards and practices in tune with the new regulatory regime.

Various regulatory measures like implementation of RERA and GST are aimed to strengthen the real estate market by introducing transparency and creating greater confidence in the consumers. They seek to correct distortions, streamline the sector and bring in more investments. The CREDAI-JLL report itself has acknowledged that RERA coupled with GST has improved the regulatory environment leading to rationalizing of prices and ensuring a setting in which only compliant players thrive.

In the new ecosystem, the pioneering initiatives like 100 Smart Cities, Housing for All by 2022 and PMAY will create huge investment opportunities for new projects for private sector across the country. All of you need to adapt to the transformation that is taking place in the realty sector by combining technology, innovation and entrepreneurship.Housing in our country is as basic a need as food and clothing. The judiciary has broadly interpreted the right to life under Article 21 of the Constitution to include the right to shelter.

Sisters and Brothers,

Rapid urbanization coupled with migration from rural areas has led to a massive housing shortage. It is estimated that currently there is a shortage of 19 million housing units in India with 96 per cent of those affected by the paucity belonging to Economically Weaker Sections and Middle Income Groups. The sheer scale of this shortage is staggering. Around 56 per cent of this shortage is among households from Economically Weaker Sections and the remaining 40 per cent is from the Lower Income Groups. This deficit is expected to get doubled to 38 million units in India by 2030.

With a view to easing the severe housing shortage, the Government has taken a number of measures to boost the affordable housing segment. They include granting infrastructure status, increasing the time limit from three to five years for completion of projects, allowing a year’s time to pay tax on notional rental income on unsold units and credit linked subsidy. It is believed that affordable housing segment will drive the realty sector in the coming months in view of the supportive measures taken by the government.

In a bid to provide a major thrust to affordable housing, the Government had increased the outlay for PMAY (Urban) by Rs. 25,000 crore in extra budgetary resources for the implementation of PMAY in the financial year 2018-2019. It will be raised outside general budget. The budgetary support is Rs.6500 crore which translates into an effective enhancement of 520 per cent over previous year.

Around 37.45 lakh dwelling units in 7,474 projects with an investment of Rs. 2,03,752 crore have been accepted under PMAY in the last 31 months.  Out of this, 19.49 lakh houses have been grounded and 3,19,648 houses have already been completed.  A total of 2,78,267 houses have been occupied.

A National Urban Housing Fund for Rs. 60,000 crores have been set up in Ministry of Housing and Urban Affairs for raising Extra BudgetaryResources (EBR) in phases for the rapid implementation of (PMAY) (U).

The announcement of a dedicated “Affordable Housing Fund” will go a long way in meeting this requirement of low-cost housing.  The modalities to operationalize the Fund will be worked out by NHB.

Some of the Recent Initiatives include expanding the scope of CLSS to include two MIG income categories to provide four per cent and three per cent subsidy for loans up to Rs. 9 lakhs and up to Rs. 12 lakhs respectively. Similarly, the carpet area for MIG-I has been increased up to 120 square metre and for MIG-II up to 150 sq. metre.

The other initiatives include lowering of GST rate from 12 per cent to eight per cent for the houses covering EWS, LIG, MIG I and MIG II. Thus, most of the housing projects in the affordable segment in the country would now attract GST of eight per cent (after deducting value of land).

The recently revised FDI circular permitting FDI into Real Estate Brokering Service would further professionalize the sector.

Overall, the Union Budget coupled with the recent initiatives will have a positive impact on the Housing and Real Estate Sector in India.

In order to overcome the housing shortage, there is a huge need to step up housing loans, which are 7 per cent of the GDP, much lower than any developed country and even lower than 20 per cent witnessed in South East Asian countries.

As against an annual average of Rs. 1 lakh crore for housing, it is estimated that an investment of Rs.18 to 20 lakh crore is required for the next six years.

The twin roles of housing as a development imperative and as an engine for growth have played an important role in ensuring equitable distribution of income. I am told that the share of real estate sector, which includes ownership of dwellings, accounted for 7.7 per cent in India’s overall Gross Value Added in 2015-16. The labour to output ratio is the highest among all the sectors, which points to the critical role of housing in generating employment. The role of housing in boosting investments on sustainable basis is highlighted by the fact that a unit of increase in the final expenditure in the housing sector generates additional income as high as three times the income generated within the housing sector itself.

While the number of new launches in the residential sector in eight cities—Ahmedabad, Bengaluru, Chennai, Delhi-NCR, Hyderabad, Kolkata, Mumbai and Pune declined by about eight per cent during 2016-17, the launches of affordable housing units increased by 10 per cent, according to Cushman & Wakefield research report (2017). In fact, the share of affordable segment increased to 30 per cent in total launches in 2016-17 as against 25 per cent in 2015-16.

Sisters and Brothers,

Although the measures taken by the government have given a boost to affordable housing, there is a need for the private sector and real estate developers to play a bigger role in promoting low cost housing. Other challenges like lack of low cost land in urban areas and delays in clearances need to be addressed to boost affordable housing.

Friends,

India’s growth in recent years has been supported by “prudent macroeconomic policy including a new inflation targeting framework, energy subsidy reforms, fiscal consolidation, higher quality of public expenditure and a stable balance of payment situation.

“In addition, recent policy reforms have helped India improve the business environment, ease inflows of foreign direct investment (FDI) and improve credit behavior” said World Bank’s India Country Director Junaid Ahmad.

“In the long-run, for higher growth to be sustainable and inclusive, India needs to use land and water, which are increasingly becoming scarce resources, more productively, make growth more inclusive, and strengthen its public sector to meet the challenges of a fast growing, globalizing and increasingly middle-class economy,” he added.

This will require continued impetus for structural reforms. Resorting to countercyclical policies will not help spur sustained growth and India should not compromise its hard-earned fiscal discipline in order to accelerate growth.

The strength of the Indian economy and favourable demographics, coupled with the introduction of several growth oriented reforms are aiding the real estate sector to attract higher investments.  The Indian real estate has attracted institutional investments of over US$ 10.7 billion, since the beginning of 2016, which is more than half of the total investments witnessed since 2013.

Private equity investments in the real estate sector have increased from US$ 0.9 billion in 2013 to over US$ 5.9 billion in 2016, recording more than six fold jump during this period. The year 2017 is on its course to witness the highest annual investment in Indian realty in the past decade, with about US$ 5 billion worth of funds already been invested between January and June 2017. Also the total FDI of US$ 257 million in the first half of 2017 is more than double the total FDI in 2016.

This positive sentiment was attributed to a host of factors including regulatory environment leading to higher transparency, accountability and making the sector better organized and structured, thereby increasing the investment.

Finally, I would like to compliment CREDAI for the host of CSR activities undertaken by it. At the same time, I would like CREDAI to focus on two important things for the families of the workers—health and education. These two should be given top priority and ensure that the workers and their families are not denied their basic rights in any manner.