How do government policies and regulations impact India’s real estate market?

The real estate sector in India contributes 8-9% to the GDP (Gross Domestic Product). It is the second largest employer after agriculture. There are more than 200 interrelated industries such as cement, steel, bricks, paints and furnishings etc. to the industry. The Indian real estate is projected to be around $1 trillion in size by 2030 contributing a handsome 13-15% to the GDP thus highlighting its importance in the Indian economic scene.

The Indian real estate sector is an important contributor to the economy, and therefore it goes without saying that the industry's growth depends greatly on the regulatory framework and the policies. A policy adjustment with a focus on transparency and demand generation can have a favorable impact on the sector. On the contrary, policy flaws might seriously harm the growth.

1. Ambitious infrastructure plan

India is starting a very ambitious effort to overhaul its whole infrastructure. It boasts a massive infrastructure grid of over $1.4 trillion encompassing world class amenities like greenfield airports, railway corridors, smart cities, industrial parks, renewable energy facilities, high speed transport lines, suburban networks and much more. Under the project Bharatmala, we are constructing 35-40 km of highways everyday. Under Sagarmala, it is aggressively developing new ports, modernizing the existing ones and constructing Coastal Economic Zones (CEZ). The enormous infrastructure effort in India naturally brings with it the demand for new dwellings, commercial offices, warehouses, cold storages etc.

Real estate in India contributes 8-9% of the GDP (gross domestic product). It is the second largest source of employment next to agriculture. This industry is interconnected with approximately 200 sectors like cement, steel, bricks, paints and furnishings etc. The Indian real estate industry is expected to be near $1 trillion by 2030 and will contribute significantly 13-15% to the GDP, which further emphasizes its importance in the Indian economic landscape.

Given the importance of the Indian real estate business in the economy, it is logical that the industry depends on policies and regulatory frameworks for its growth. A focused shift in policy, based on transparency and demand generation can go a long way in favorably impacting the sector. On the other hand, policy flaws might considerably retard the growth.

2. Intervention by RERA

The introduction of RERA in 2016 was a step towards empowerment by Indian regulatory organizations. It has played a pivotal role in bringing equilibrium in real estate and protecting interest of homebuyers. RERA has asked developers to give clear information, adhere to stringent schedules for project delivery, use escrow account to prevent unlawful movement of cash etc.

The scheme has changed the Indian real estate to a large extent and has brought in more transparency and hence boosted the confidence level of buyers and investors.

3. Simplified tax structure via GST

Levied on July 1, 2017, GST (Goods and Services Tax) has greatly simplified the overall tax structure in Indian real estate replacing other forms of taxes such as VAT, service tax etc. Under GST, a 5% and 18% taxes are stamped on residential and commercial properties respectively. There is also a provision for developers to claim input tax credit which has helped in rationalisation of costs.

4. Housing plan

The government has proved its determination to provide a dwelling to every household in India. Acute housing shortages have been a bane of the country and policy pushes like ‘Housing for all’ will go a long way in bridging the gap. It would also increase the demand for inexpensive homes in India. The policy promised to provide 1.23 crore urban houses by 2022. On the contrary 76.5 lakh dwellings have been delivered.” The ambitious plan has not achieved the initial aim but the numbers are still impressive and represent a good step towards striking the proper balance between rapid urbanisation, sustainability and equitable growth.

5. Fractional space control

Fractional Property Ownership (FPO) is an excellent way to democratise commercial real estate transactions by reducing the overall barrier to entry. Under FPO, one can also engage in high earning commercial assets like grade A office buildings, industrial parks, warehouses etc. with low capital (₹20-30 lakh). The Securities and Exchange Board of India (SEBI)has shown interest to regulate the market by making code of conduct for the managers recently. This is a good development that will bring more openness and discipline to the industry.