Lessons from the neighbour
India must accelerate its growth to maintain a competitive edge over China, which recently implemented a series of reforms aimed at revitalising its struggling real estate sector. According to a Bloomberg report, the People’s Bank of China has effectively removed the nationwide minimum mortgage interest rate. Additionally, they have lowered the minimum down-payment ratio for first-time homebuyers to 15 per cent and for second homes to 25 per cent, down from 20 per cent and 30 per cent respectively.
Rising up to the dragon
Recently, India achieved a significant milestone in the global real estate sector by surpassing China in the number of billion-dollar real estate companies operating within its borders, as reported by ET.
Currently, the country has 36 real estate companies valued at a billion dollars, a substantial increase from just seven companies six years ago, as indicated by the latest data compiled by the Hurun Research Institute.
This highlights India’s thriving real estate market and its growing appeal to both domestic and international investors. The data featured in the 2024 GROHE-Hurun India Real Estate 100 report underscores a robust growth trajectory in the sector, driven by factors such as urbanization, infrastructure development, and evolving consumer preferences.
In contrast, China’s real estate market is grappling with significant challenges, including government restrictions and a slowdown in demand. In Mainland China, the number of listed companies valued over a billion dollars has declined from 100 to 30, while in the Hurun China 500, which has a higher threshold of $3 billion, the number has dropped from 50 to just 10.
Reform or regress?
The real estate sector is keeping high hopes for this budget in terms of policy shifts that could have a big impact on its future. According to Kaushal Agarwal, Chairman of The Guardians Real Estate Advisory, the sector has been anticipating potential policy shifts that may substantially impact its future.”With rising demand for housing, we are hopeful for adjustments in tax policies and incentives aimed at both homeowners and developers. Under the current Modi 3.0 administration, industry optimism is buoyed by expectations of renewing tax reliefs and increasing infrastructure investments, which are expected to spur growth. Initiatives such as the Credit-Linked Subsidy Scheme (CLSS) under PMAY, promoting affordable housing, show potential for increasing demand in both urban and rural areas. Additionally, reintroducing a 100% tax exemption for developers working on affordable housing developments can alleviate major supply shortages,” Agarwal said.
Agarwal also stressed the real estate industry’s need for a comprehensive strategy that not only strengthens current efforts but also provides a framework for long-term and inclusive sector-related development across the country.
A breakneck real estate growth, but will it last?
In 2023, India’s housing market reached an unprecedented peak, driven by strong demand for residential properties and robust sales across the country’s top 8 cities, as reported by ET. This surge was particularly pronounced in the mid-income, premium, and luxury segments, despite higher mortgage rates and prices.
Data from Knight Frank India revealed that India’s leading 8 property markets collectively saw a 5 per cent increase in annual sales, totaling over 329,000 apartments in 2023. Mumbai led the way with the highest sales of 86,871 units, marking a 2 per cent growth. Kolkata experienced the highest percentage growth in home sales at 16 per cent, followed closely by Ahmedabad at 15 per cent, and Pune at 13 per cent.
“Real estate in India has grown steadily over the last few years, driven by factors such as rapid urbanization, infrastructure improvements, favorable demographics, and government policies geared towards growth,” said Niranjan Hiranandani, Chairman, NAREDCO National.
According to Shishir Baijal, CMD, Knight Frank India, 2023 was another watershed year for India’s residential market. “Characterized by a shift towards more expensive properties, the residential market continues its onward march to achieve another watershed year in 2023. Without a doubt, this growth is led by the strong economic fundamentals of the country that give buyers financial confidence to make long-term investments,” Baijal said.
Making a case for ‘Industry Status’
Advocating for reforms, Heeralal Doshi, Founder and Chairman at Kinjal, stated that granting ‘industry status’ to the housing sector could incentivize growth and attract significant investment.
“India’s real estate sector awaits significant policy shifts under the Modi 3.0 govt. With growing demand for housing, offices, and commercial zones, we hope for tax incentives and infrastructure upgrades to improve urban living and boost growth in emerging areas. Granting ‘industry status’ to the housing sector could incentivize growth and attract significant investment,” Doshi said.
“Additionally, the introduction of a single-window approval system for real estate construction would streamline processes, reduce delays, and boost efficiency across the sector. The EPC sector in India needs more investments and clearer regulations to thrive. New tax rules can help EPC firms overcome challenges and innovate. The upcoming budget is also set to focus on smart cities, renewable energy, and high-speed rail, aiming to modernize infrastructure and drive economic growth,” he added.
Is the real estate sector getting its due?
Meanwhile, Ashok Singh Jaunapuria, MD and CEO of SS Group, batted for tax reforms and more incentives to improve accessibility and sustainability of homeownership.
“We look forward to the Union Budget 2024 with anticipation of tax reforms, more incentives for affordable housing, higher investment in urban infrastructure, and streamlined regulatory procedures. These steps will increase the sector’s growth while also improving accessibility and sustainability of homeownership,” Jaunapuria said.
“The government should consider increasing the interest deduction limit to encourage homeownership. Enhancing tax benefits will provide stronger incentives for potential homebuyers to invest in real estate, thereby supporting individual financial security and driving market growth. Increased deductions on home loan interest can make owning a home more financially viable for many, potentially leading to a surge in demand for residential properties,” Jaunapuria added.
Jaunapuria emphasised that higher investment in urban infrastructure can enhance connectivity and quality of life, making urban areas more attractive for both residents and investors. “Simplified regulatory processes will help developers complete projects more efficiently, reducing costs and delays,” he added.
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