At different places, I often hear people talking about how real estate companies are awash with funds. Some talk, in hushed tones, about the cash economy and others believe, and perpetuate the belief, that funds are lining up before realty companies to invest in them.
As much as realty companies would love to be in that situation, it is far from the truth.
Realty companies face just about as much challenge raising capital as others. Some would argue that it is even more difficult to raise institutional capital because the sector has not been given industry status.
Despite the challenges faced by the developers in securing funding, nearly 35 per cent of it is added to the cost of a house by way of taxes and levies by the government. Urban land bodies and state governments together levy a variety of taxes in the form of registration, value added tax, service tax, developer agreement stamp duty and others.
There is constant pressure on cost because of the rising cost of input and cement prices in particular have been a worry for all construction companies. Getting working capital funding from banks is easier said than done.
With affordable housing projects being such a challenge to execute within the stipulated time and budget, it is a critical need of the hour that state governments take a fresh look at their priorities to rationalise the taxes on the real estate sector.
The demand to the government is not without precedent. During the 1990s, it took nearly five years for the mobile phone industry to get a million subscribers because the government levied a fixed licence fee from the telecom operators. When it changed to a revenue sharing formula after the New Telecom Policy in August 1999, the industry changed the face of India’s telecommunications industry. With a billion subscribers and over 400 million mobile internet users, India was adding 18 million subscribers at its peak every month! With a smart positive move in the 1990s, India is now ready to take its leap into the mobile digital dream.
The government’s policy of ‘Housing for All by 2022’ could follow that model too. The government needs to appreciate that the industry would want to make sure that its policy can be achieved and if both can join hands it can be a win-win situation for the people too.
Early signs of a seismic shift in banking are already being witnessed after the issue of new banking licences, payment bank licences and quicker integration of technology with banking. Many argue that the process is already underway and telecom and banking grip each others’ hands firmly and the pace of change could accelerate in the days ahead.
For the realty industry, several related developments may also be worth making a note of. All of this could help change the housing scenario in the country like never before. Better practices that enhance quality of construction and help turnaround projects faster are already available in India. Recent news reports suggest several realtors from Madhya Pradesh recently visited Delhi to take a firsthand look at the facilities of a company in Delhi. As companies face a shortage of quality construction workers, pressure of deadlines for delivering a project and seasonality worries, technology could come to their rescue.
Wider adoption of precast technology for realty projects will help in easing some of the pressures on realty companies. The pace at which precast technology helps cut down execution time is a great boon for companies and helps cut down on their operating capital cost. As the technology is adopted by companies outside the big cities, it will cut down the project time considerably.
Very soon, a regulator will be in place in every state to protect the consumers’ interest. Some states have started making the announcements and the tempo is expected to pick up.
It is now that the government needs to give a push to rationalising duties and taxes so that the policy dream can be achieved. Meeting a goal like that of providing housing for all is best done with the industry walking hand in hand with the government.
