Realty’s Role In $5 Trillion Dream

Accelerating the economy in a business climate currently straddled with challenges and uncertainty is a hard task. Such being the case, good health of the housing sector is a non-negotiable pre-requisite for India to become a $5 trillion economy in the next five years.

Contributing about six-seven per cent to the country’s overall GDP, development of real estate, particularly housing, is a strong indicator of economic growth. This is because it is the third-largest employer after agriculture and manufacturing. Besides generating taxes for the government, growth in housing has a direct and positive impact on a vast number of ancillary industries such as steel, cement, transportation and paint. Besides, architects, civil engineers, property brokers, contractors, plumbers, interior decorators, furnishers also gain tremendously from increased housing activity.

Various industry estimates suggest that real estate could be a trillion-dollar industry in the next 10 years and its contribution to GDP can rise to as much as 11-13 per cent. Some major factors including technology and infrastructure development are working in its favour. Technology is rapidly re-shaping the way housing business is conducted. Virtual tours of the property, digital contracts, centralised command and control centres, smart building solutions and cloud storage are being adopted across the board, making the house buying experience for customers seamless and stress-free process.

 Infrastructure development work over the last few years has proved to be the main catalyst for economic growth and is creating opportunities for housing sector as well. Construction of national highways hit a record 31.87 km per day earlier this year, with the government targeting to have a network stretching up to 2 lakh km. Better connectivity supported by mushrooming satellite cities and smart cities offers plenty of growth opportunities for housing. As part of its goal to become a $5 trillion economy by 2024, India plans to spend $1.4 trillion on its infrastructure in the next five years.

 One of the most noteworthy catalyst for economic growth has been the affordable housing segment. Policy initiatives towards housing have always been a core agenda for the government which is proactively working towards a rent-free housing system. ‘Housing for All by 2022’ carries the potential to not only bring out the real estate industry out of the slump but also spearhead the economy into the ‘big league’.

 Costing less than Rs25 lakh, one in every five houses sold in India falls in the ‘affordable’ category. Housing subsidies for economically weaker sections and other tax sops have pushed up residential house sales under the ‘affordable housing category’ making it the most consistent and fastest-growing segment. A growing pile of unsold inventory is perhaps one of the biggest challenges faced by the realty sector today. As per recent industry estimates, over 13 lakh houses worth Rs9.38 lakh crore or about five per cent of India’s gross domestic period (GDP) are lying unsold across India. The unsold inventory currently stands at 42 months which means it will take three-and-a-half years for the existing unsold flats or houses to clear up.

A slump in the residential property market is leaving many builders struggling to repay loans to housing finance firms, already reeling under a liquidity crisis.

The finance minister has recently made efforts to address the issue by deciding to infuse Rs25,000 crore worth of funds to help finish pending housing projects. The government will infuse Rs10,000 crore into an alternative investment fund. SBI, LIC and other sovereign funds will add to this fund to take it to Rs25,000 crore. This is a much-needed antidote for the ailing realty sector. While the amount may seem small compared with the overall funding requirement it will play a big role in boosting the sentiments of the stakeholders and ultimately serve as a fuel for economic growth.

To quote our Prime Minister Narendra Modi, the target to make India a $5 trillion economy is “challenging, but achievable.”

The author is the Executive Director and CEO of  Reliance Home Finance.