Bottom Line: The state of economy leaves little room for the Finance Minister to grant any budget wish to the real estate sector.
A budget bonanza is a wish that businesses across the sectors dream about and real estate is no exception. Real estate, as a matter of fact, has to its claim being the key contributor of GDP and job market, besides accelerating a number of allied industries through backward and forward linkages.
However, today on the eve of Union Budget 2018-19 the critical issue is whether the state of economy allows the government to grant a bonanza.Â Forget any bonanza, the economists are even pondering whether the economy would allow the Finance Minister to address the legitimate concerns of real estate.
Beyond the routine optimistic overtones on part of the stakeholders of Indian real estate this is one question that is on the top of the mind of everyone. After all, the growth forecast has been corrected and subdued and the key indicators along with industries not picking up as expected.
The underline fact is that the Union Government has very little to offer substantive for real estate as far as the budget is concerned. The former Reserve Bank of India Bimal Jalan has stressed the need to have a balance between fiscal and economic growth.
Contradicting budget compulsions & expectationsÂ
State of economy demands prudent fiscal policy with little populist incentives
Banks are flush with funds but NPAs also rising
Slow job market indicates liberal lending for home buying could be counter-productive
With General Elections 2019 in mind, Finance Minister would be tempted to incentivise middle classÂ
There is no denying that the focus of the Finance Minister would be to revive demand in the market. However, any largesse or grant to long-standing demands of the sector is highly unlikely. This also includes demands on behalf of the middle class salaried homebuyers.
The developers nevertheless have their own reasons to be optimistic. JC Sharma, VC & MD of Sobha Ltd feels that if the government offers calibrated incentives to the homebuyers, in addition to schemes such as Credit Linked Subsidy Scheme (CLSS) under PMAY, the customers who are fence sitters will be enthused to buy homes.
âIf there are schemes or incentives for homebuyers who are single mothers, retirees, physically disabled and other vulnerable sections of the society, it will bring a larger section of people to invest in a property, augmenting the demand for housing. Idea is to address genuine demands of large section of the population by enabling a reasonable set of incentives. This will give fillip to the entire sector, which has been facing challenges for the past few years,â says Sharma.
Ashish R Puravankara, MD of Puravankara asserts that real estate is the second largest employer in India after agriculture. The sector is hopeful for the incentives as these incentives promoting growth will create employment opportunities across the sector and eventually be a catalyst to better the economy. A longer-term view must be maintained in terms of the ROI on the sops provided to the industry, he says.
Nikhil Hawelia, Managing Director of Hawelia Group believes it is not the state of economy but the state of banks that would encourage the Finance Minister to incentivize the home buying. According to him, though there are certain roadblocks in terms of the less than expected economic growth but on a macro level the fundamentals are loaded in favour of the homebuyers, if not the developers.
âToday, the banks are flush with funds and they need one or the other lending driven sectors to grow. Now real estate is the only sector that is appreciating asset class, unlike the automobile that is depreciating asset. The finance Minister has no choice but to incentivize the home buying where the risks are less since the product keeps appreciating constantly. My personal view is that if the homebuyers are incentivized with the Union Budget the business of real estate is resilient enough to bounce back,â says Hawelia.
The state of the economy, on a realistic level, leaves little room for the budget bonanza. Though there might be some relief for the homebuyers but that also is expected for the buyers at the bottom of the pyramid. With the government already looking forward to 2019 General Elections, some symbolic relief could also be expected for the middle class but the financial compulsions of the Finance Minister does not give hope of a budget bonanza. Balance between farm growth and infrastructure growth would be the key a year before the elections.
By: Ravi Sinha