Despite 2022 being a landmark year for the Indian real estate sector, with residential housing sales increasing by over 50% in comparison with 2021, there are challenges that need to be addressed to sustain this momentum. Let us look at four major expectations of realtors from the Union Budget 2023 and why they remain important to power real estate consumption in the world’s fastest-growing economy.
GST Rate rationalization for brokerage services
Both GST and RERA have had a positive impact on the Indian real estate sector, but those involved in real estate brokerage services have given the short end of the stick. There are no guidelines or laws on brokerage rates, and hence, neither the buyer nor developer has any legal obligation to pay the applicable commission on every transaction.
As a result, the onus of collecting the current 18% GST rate on brokerage services lies solely with realtors, many having to bear the same out of their pocket. Therefore, there is a need to bring real estate brokerage services on par with other service providers by reducing the GST rate to a more tenable 5%. With an estimated 1 million real estate brokers in the country, this tax reduction should motivate more of them to come under the tax net and positively impact the government’s tax collections from this vital services sector.
Stabilizing interest rates so as not to derail consumer demand
While the Covid-19 pandemic-driven low-interest rate regime helped spur the demand for residential real estate and home loans, the sharp reversal in interest rates to above pre-pandemic levels has made prospective home buyers wary. It is imperative to stabilize interest rates, which would lead to steady EMIs and invite more Indians to fulfill their aspiration of owning a home. Stabilizing or bringing down the interest rates would also support the supply and demand imbalance in the sector since a fluctuating interest rate regime would benefit speculators rather than the end user. A steady and low-interest rate regime would facilitate further growth in the Indian real estate sector, boding well for consumers, developers, and even financial institutions.
Industry status for the real estate sector
While the real estate sector has had many regulatory and procedural changes implemented in recent times, it continues to be known as an unorganized sector rather than an important nation-building contributor. Being the second-largest contributor to the country’s GDP, it has been a long-standing demand for the real estate sector to be accorded an industry status. This will help in making the sector more organised and improve transparency in the operations of its various constituents.
Moreover, it is important that the Budget provides for the establishment of real estate-focused education platforms aimed at upskilling existing professionals and budding realtors. Initiatives such as skill development programs, soft skill training, and programs for marketing professionals could be envisaged under such platforms. Such a move would help upgrade one of the biggest job markets in the country and motivate thousands of young Indians in joining the Indian real estate sector. Project financing for the developers
With real estate developers having to contend with financing rates that are 6-8% above even home loan rates, the developer community in India has been looking for governmental intervention in the project financing space. Towards this end, the Finance ministry could direct the RBI to reduce interest rates on project finance and even establish a real estate-focused governmental fund that provides developers with flexible access to capital at a minimal rate of interest.
Either of these moves would be welcomed by the Indian developer community and help accelerate projects that are stuck for want of capital. This would, in turn, spur developers to pursue more affordable housing projects and align themselves with the mission of Housing for All.
While developed economies around the world contend with risks of a looming recession, India remains a bright spot as it falls back on its burgeoning population to stimulate domestic demand. It is therefore pertinent that the Union Budget 2023 lays the groundwork for improving consumption in critical sectors like real estate by exceeding the expectations of both consumers and developers alike.
(Sumanth Reddy Arani is the Vice Chairman of NAR India)