What do homebuyers expect from the 2014 budget?
“Ninety percent of all millionaires become so through owning real estate” ~ Andrew Carnegie
The above quote is largely the catalyst for the swagger amongst the corporate executives & SME owners who invested into real estate during the years 2000 – 2007, in the NCR & some select markets in India. While the analysts would still label the real estate industry as a “high risk-reasonable reward” opportunity, those who made it bog would swear by it.
However, what does the “Aam Aadmi” who has been fence sitting on the banks of the “Achche din” for far too long. Those who didn’t take the risky plunge in the preceding years, await the magic wand of Arun Jaitley to create the next wave of Real estate millionaires on the 11th of July 2014, post the budget 2014.
Let’s take a rain check of what people expect, and how pragmatic are their expectations. This is what the ‘Achche din aspirants’ largely expect.
a) The new government sold the idea of ‘Housing for all” during the recent election campaign, and the selling continued during the first 30 days of government. With the government authorities & agencies like DDA, HUDA, etc. evolving into lethargic monoliths, who would create the housing stock? However optimistic that we may be, the private sector works on the profit motive, and the low cost housing not being a rewarding vocation, the markets would continue to create products for the top 20% of the paying public, who would leverage & stretch themselves to invest into real estate.
b) It’s common knowledge that the Aam admi’s real estate investments do grow only when there are substantial investments into infrastructure by the government. E.g.: Roads, Metro, water, Parks, sports & recreation, schools & hospitals etc. in the vicinity.
c) Affordable housing is a word as frequently used as ‘Achche din”, but does it translate into action? Housing can be brought within the reach of the larger public by these four legit expectations.
i. Increase in Tax exemption limits on housing loans
ii. Reduction in stamp duty fee
iii. Lower pricing of raw materials including land, steel, cement etc.
iv. Hidden costs like Service tax, VAT, PLC, parking etc.
d) Qualitative Increase in living standards through facilitating innovations in construction technology, materials & design. Would the government aid the entry of multinational firms in these areas, including their capital, is another question. While the industry is keen to welcome money in any color, the government’s reluctance to play enabler is understandable, as the RE industry hasn’t done too well on credibility issues.
e) Center Vs. state is an age-old debate in our federal structure, and Real estate is a state subject. While the central budget can be guiding policy & an enabler, it is the states, which need to create laws in the interest of their habitants. One clear example being the NCR markets of Delhi, Gurgaon, NOIDA, Bhiwadi. The FAR, density, EDC, IDC norms vary from state to state. Can the FM incentivize the states & RE developers to bring about parity through innovative methods?
f) Not all are buyers; spare a thought for the sellers. Many an Aam Admi have graduated to being the ‘Khaas’ 20% of the society, who own more than one property. One major issue that is confronted by both the buyers & sellers of the finished properties is the “Capital Gains Tax rate”.
i. The seller has to raise the price to cover the tax
ii. The buyer has to raise more capital to buy a home
iii. Both have to deal with the Black money in the transaction
One common observation I have is that the expectations are too high amongst the stakeholders of the industry, and that Greed from both the developers & buyers aren’t helping the cause much.
Can Budget 2014 change people? I doubt!!
The author, Ramesh Menon, is the founding Director of CERTES Realty Ltd, and is a Land & Urbanization expert with deep rooted understanding of the Delhi Master plan MPD 2021