Growth of real estate to boost entire economyAuthored by—Vishwajeet Jhavar, CEO, Marvel RealtorsInvestment into infrastructure and real estate can do miracle for high growth — China is such example. Vishwajeet Jhavar, CEO, Marvel Realtors, writes that India too has the potential to embark on such a high growth with real estate being a key driver
The last decade or so has seen the transformation of India. The sustained effects of the economic reforms unleashed by the Indian government in 1991 in some ways came to fruition in the last decade with the country getting on to a growth trajectory of 8-9 per cent in GDP. We are at present witnessing a perceptible slowdown in the economy, but hopefully with the steps that have been announced by the government, India should get back to a high growth trajectory. Also, India is witnessing growth against the slowdown being seen in many parts of the world. India should get back on to a high growth path as the overall India story remains intact.
Real estate and GDPThe real estate sector has played its part in the growth of the Indian economy. This has been witnessed in the huge construction in Tier-1 cities as well as the spread of such construction to Tier-2 cities. Many Indians, especially those in the cities, today definitely enjoy a better quality of housing. The sector contributes to about 5 per cent of the GDP which is significant. This, however, is far less than in the case of the country with which India is compared with most frequently — China. The contribution of the real estate sector to China’s growth is about 12 per cent. This is also below than that in many of the developed countries in Europe.One of the factors for real estate being unable to contribute more to the development of the economy is that it has not been accorded infrastructure status. This status would allow the sector to enjoy a slew of benefits. The benefits would include tax concessions and enable real estate companies to issue tax-free bonds as well as make it possible for them to access to cheaper external commercial borrowings. On the whole, this would help them to access cheaper finance from institutional sources. This would enable the real estate sector in its onward march toward greater respectability. On the supply side, individuals too would get access to cheaper loans.
Focus on real estateThe Indian real estate sector should be treated on par with other sectors of the Indian economy that have been accorded infrastructure status. Some of the major sectors of the economy that enjoy this status are power, water, roads and bridges, oil and gas, ports, shipping, telecommunications, aviation, dams and irrigation canals. All these sectors have certain common characteristics which enable them to be classified as infrastructure sector. The Indian real estate sector too shares many of these characteristics. Further, it has to contend with challenges and risks that are again similar to the industries enjoying infrastructure status. The real estate sector provides considerable employment and makes possible the secondary sector of the economy. It is the building block for segments of the economy like the ITITeS sectors which have put India on the global economic map. Add retail to this list and you have a compelling case for practically all new age and old economy business benefiting from growth in the real estate sector. Clearly, the growth in the real estate sector will have a multiplier effect on the economy. Hence, according infrastructure status to this sector will benefit the entire Indian economy. The flip side of this is that a slowdown in the real estate sector will have a cascading effect on the rest of the economy, resulting in an overall economic slowdown or downturn. This in turn can result in greater unemployment rates and falling investments. Quite clearly any impetus to the real estate sector will result in a fillip to the rest of the economy and conversely any setback will lead to an overall adverse effect on the economy. There is clearly a compelling case on the basis of this alone to give infrastructure status to the real estate sector.Real estate: standing strong in adversityForget the rest of the economy for a moment and consider the real estate sector in isolation. Various estimates have pegged the shortfall in urban housing to at about 18 million units. If not anything, infrastructure status will help bridge this gap.
The sector today has to grapple with problems like rising lands costs, lack of adequate availability of funds in the demand and supply, and shortage of skilled, trained manpower. It is in solving such issues that the grant of infrastructure status would help. Also, many of the government’s own policy initiatives would benefit from this. At present 100 per cent FDI has been allowed in the real estate with strings attached. The inflow, however, has clearly not been along expected lines. Grant of infrastructure status would clearly gives investors greater comfort and ensure greater FDI inflow.
The great growth of ChinaChina has been on a path of high growth because of huge investment pumped into infrastructure and real estate. This is now being replicated by other countries. India too has the ability to embark on such a high growth with real estate being a key driver.
Action planThe real estate sector is the second largest employer in the country after the agriculture sector. Development in this sector is bound to create further employment. Also, this sector serves as the building block for the manufacturing and tertiary sectors of the economy. Any growth in this sector will have a multiplier effect on the economy as a whole.
The development of the real estate sector can act as a key growth driver in the economy and help put India in the path of long-term growth. Infrastructure status should be accorded to the real estate sector as it is not just in the interests of the sector but the economy as a whole.