By: Sachin Sandhir, Global Managing Director, Emerging Business, RICS
Track2Realty Exclusive: The time of transition for the Indian real estate and construction sector has finally arrived. Since last few years, a number of regulations pertaining to the real estate market were put on hold. A number of them are now at the draft stage waiting for Parliament’s approvals.
Famous among these is the much awaited real estate regulation for the Indian market. The draft Real Estate (Regulation and Development) Bill 2013 was debated and then sent for Parliament’s approval.
While the draft bill waited for its turn, government changed. The new government brought various measures that have been progressive and forward looking. The announcements such as allowing Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVits) and plans to build 100 smart cities has made the Indian market a sought after investment destination.
The government also eased overseas investment rules in construction to attract money into the funds-starved sector and serve its twin objectives of faster job creation and housing for all. The government recently held consultations over the draft real estate regulation and establishing single window clearance mechanism.
The government recently approved a comprehensive proposal by the Department of Industrial Policy & Promotion (DIPP), dropping the minimum 10-hectare rule for serviced housing plots and slashing the minimum floor area for construction development projects to 20,000 sq m from 50,000 sq m to be eligible for overseas investment.
It also halved the minimum foreign direct investment (FDI) amount to $5 million from $10 million. With exit norms simplified, the relaxation in norms will encourage more investors to consider investing in India.
Poised for growth, the amount of investments within these sectors has seen an increase in the past six months. Investors from around the world are looking at India as an investment destination that promises healthy return in the longer run. So what lesson do we get from this?
The answer lies in comparing the current scenario from the times when the country was unable to implement the drafted policies on ground for some meaningful change. The recent announcements have not only increased the quality of investments in the Indian real estate but have also increased the share of investments from foreign funds.
To simply put it, the Indian market has become slightly more transparent and lucrative for the world after a sense of stability and simplifying norms of doing business in India.
And this has been achieved despite not having a real estate regulator! Imagine a situation when we will have a real estate regulator and an Appellate Tribunal, as envisaged in the draft Bill; the market will probably be one of most transparent and easy markets to operate in the entire world. The opening of REITs and InVits is just a precursor to that stage.
As the work towards simplifying norms and rules continues, we can expect more and more facilitation from the government and lawmakers.
What needs to be done?
According to a recent economic commentary on India by RICS, the Indian economic expansion is set to regain pace through fiscal year 2014-15. Over the past decade, India has managed to achieve an average annual GDP growth rate of 7.7 per cent and is now the world’s 10th largest economy. The task now facing policy makers is to put India back on the path towards achieving full growth potential.
The first thing that needs to be done is to bring inflation down. This would help revive the domestic market sentiment and will result in more spending. Second, introduction of tax reforms initiative, the Goods and Services Tax regime will pave the way for further growth.
Third, the demand for consistency when conducting asset valuations has become a priority for one of the world’s most influential economic forums. Valuations are central to decision-making within the global economy, applying both to capital and property market decisions and to decisions and actions in public and private sector organisations, including regulatory organisations.
Thus, adoption of International Valuation Standards (IVS) is imperative. And India needs to adapt to these guidelines when it comes to valuations. Red Book of RICS on Valuations is aligned to the global valuation standards or the IVS.
In addition to this, a Coalition, the International Property Measurement Standards Coalition (IPMSC) is already working towards bringing uniform measurement standards for commercial, residential and industrial properties. If these guidelines are implemented in India and policies are framed as per the guidelines framed by the IPMSC India will be one of the most transparent markets in the world.
Fourth, to generate further growth and make the market more proficient, it is imperative that the sector has enough trained professionals to carry out the task during the period of transition. According to RICS Research Report ‘Real Estate and Construction Professionals in India by 2020, India has nearly 50 million people working in built environment, of which only 2 million are professionally qualified, while the remaining are primarily construction workers.
To deliver all the potentially required real estate space and planned infrastructure, the built environment will have the requirement of 5 million skilled candidates every year till 2020. Therefore, going forward we would need a robust educational set up to train our youth for the variety of jobs that the real estate and construction sectors offer.
Fifth, urban planning in India is often seen to be out of sync with all other kinds of planning at the city/town level. With the effective usage of Information and Communication Technology (ICT) and lean construction methodologies the pace of construction can be enhanced. Thankfully, as bigger Indian cities are linking their urban planning with the needs of a changing population, we need to follow the same example in smaller tier II and III cities.
To start with, planning on the lines of smart cities can be replicated to all the new developments. Moreover, it is important to understand the needs of employment, usage of environmental resources in the region and energy in a particular city before the planning.