Bengaluru: Union Budget has come and gone, leaving realtors bristling with its silence on a critical ask from the sector - “industry status”. Developers have been lobbying for this for many years, pinning their hopes on this asterisk resolving many of their problems. Let’s examine some:
Streamlining regulations
“The real estate sector in India is regulated by multiple agencies at various levels of the government such as municipal, state, central, leading to a complex regulatory environment,” pointed out Vivek Rathi, National Director, Research at Knight Frank India.
Shrinivas Rao, FRICS and CEO, Vestian, said, “Streamlining regulatory processes in the real estate sector involves addressing challenges such as the need for multiple approvals from various authorities, complex land acquisition procedures, stringent tax regimes, and lengthy environmental clearance processes.”
Rathi added, “While there is Real Estate (Regulation and Development) Act, 2016, which aims to bring transparency and accountability to the sector, at this stage, its effectiveness is inconsistent across states, as some states are slow to adopt it.”
Reiterating the significance of an industry status, Pavitra Shankar, Managing Director, Brigade Enterprises, told DH, “Most important is a single window clearance that can streamline approvals and simplify bureaucratic formalities.”
Government support
“The granting of industry status would also mean benefiting from policy incentives from the government in terms of tax breaks, subsidies,” Shankar projected. Others talked of schemes and policies tailored to the sector, subsidies, and financial incentives.
Vimal Nadar, Head of Research at Colliers, explained, “With industry status, it is easier to get concessions and funding in the form of capital and interest subsidies, refinancing options under defined programmes and policies. Since it forms a part of state and central budgetary allocations, it helps with the overall release of funds and state support, which is currently not there seamlessly.”
Rao too rallied, “Sectors with industry status enjoy the government’s undivided attention and witness tailored policies and frameworks specific to their needs. This streamlines the process and reduces bureaucratic hurdles.”
Ease of financing
Ramani Sastri, Chairman and MD of Sterling Developers, said on priority sector lending as a result of industry status, “Amending the Finance Act whereby financing to real estate is considered and accounted for in the primary lending and made a part of the overall lending of banks and financial institutions, in the course of regular industrial lending, will be a major support. Being part of priority lending will bring down the interest rate as compared to the current scene where we are seen as non-industrial and don’t get benefit under priority lending norms.”
“This would provide developers access to institutional capital and more affordable financing, encouraging developers to undertake larger projects and further formalise the sector,” Shankar argued.
Rao detailed, “Construction finance is available at 12-15 per cent for real estate developers, depending on their financial strength and creditworthiness. Moreover, loans are available at 8-10 per cent against Lease Rental Discounting (LRD) as a secured loan where banks and developers have a common escrow account. Cost of a loan also depends on the size of the developers’ portfolio; smaller the size, higher the cost. If industry status is allocated to the real estate sector, funds will be available at competitive interest rates, ideally 7-10 per cent.”
Rathi said, “An industry status assists in improving the credit rating of companies/firms, as a result of which institutional lenders may view the industry as more stable, and less risky, thus, improving its credit worthiness.” He added that currently, lending rates are about 2-2.5% above the repo rate.
While their disappointment is ill-concealed, some, such as Shankar speculated that the government may be dithering over granting industry status due to the complex tangle of rules that govern the sector, requiring the attention of both - the Centre and the state governments.