How the Government Thrust to Infrastructure will boost Housing Demand in the Mid-Term

By Mr Ankit Kansal 

In the Union Budget 2019, the Indian Real Estate industry was pinning numerous hopes on the re-elected government. There were numerous pressing demands including the long-awaited industry status, moderation in taxes, single window clearances, etc. In this regard, the budget has few hits & few misses. Though many hopes of the industry could not see their logical conclusion, some of the steps by the government are really praiseworthy such as recapitalization of the PSU banks & incentivizing them to buy NBFC assets. Likewise, the governments sustained focus on developing the affordable home segment will also help in reducing the gaps in the market.

One of the things that also need applaud is the emphasis on developing infrastructure to bring balanced & sustained growth for the country. In the budget, the government has announced to invest INR 100 Lacs Crores to develop nationwide infrastructure. Out of this, around half of the budget has been earmarked to develop extensive transport infrastructure in the country in the form of railways & metro network.

Not only will the government long term plan to give the country’s infrastructure a facelift entail wider economic impact, but will also bolster the real estate market in the mid to long term.

Catalyst for Economic Growth

Infrastructure growth is a natural catalyst for economic progress. Adequate infrastructure in the form of power & water supply, roadways & ports can go a long way in boosting the overall economic output by helping industrial output, facilitating trade & help the agriculture. On the other hand, poor infrastructure in the form of congested roadways, lower electricity & power-supply; fragile telecommunication infrastructure can result in suboptimal utilization of resources & adversely impact economic growth.

Researches done in the past has shown that by increasing the investment in infrastructure by 20%, GDP growth can be increased by up to 2% in a span of 6-10 years. A healthy GDP growth will result in higher per capita income, bring in economic prosperity & hence will naturally result in heightened demand.

Thriving Residential Market

New road lines & railways networks turbo-charge a plethora of commercial activities in the vicinity. A host of new offices, commercial complexes & retail facilities are built across the road thereby boosting economic growth. Likewise, bigger transport projects such as metros & ring-roads act as a natural stimulant for IT/ ITeS companies to grow & flourish, as they look for better mass commute options.

As a natural progression to high scale developments such as airports, metros & ring-roads- housing activities pick up fast in the vicinity.  Researches done in the past by CII suggest that just by the announcement of the airport, prices of land parcels can go up by 25-30%. Likewise, new ring road & metro project announcement can boost the prices to the tune to 8-10% & 10-15% respectively. At the latter stages, the rate of appreciation eases out, but steady growth continues to feed in more demand, attracts major developers & results into thriving residential catchments.

Equitable Growth

Not only can infrastructure developments bring aggregate economic growth but also bridge inequality & foster regional development. Infrastructure development in conjunction with technological innovations can be instrumental in better distribution of wealth across various strata of societies & tackle pressing challenges such as mass level rural to urban migrations & urban-rural divide. Systematic investments into infrastructure can ensure better mobility of goods & people, increase overall productivity,  better access to transparent information & can play a crucial role in human capital development. This, in turn, will bring out more people from poverty & offer a better standard of living resulting in higher housing demand.

As the government is already putting up a robust framework for affordable housing in the form of better credits & financial incentives, affordable housing is expected to get a further spurt in demand in the times ahead.

Conclusions

Although on the surface, the recent budget might not seem to be something that was made keeping the Real Estate in mind, it has everything to give a positive push to the sector. The government’s sustained efforts to boost the infrastructure in the form of better transportation, telecommunication, water & electricity supply can have a multifaceted positive impact on the housing demand of the country & can truly uplift the sector in a very systematic fashion.

The Writer is a Founder and MD of 360 Realtors

Corporate Comm India(CCI Newswire)