Another lost opportunity by our Finance Minister, who could have done significant lot to drive the consumer demand for real estate and turn the fortunes of the sector and in turn give a fillip to GDP growth in 2012-13.
While he mentioned that the objective of the budget was to create conditions for growth and to focus on domestic demand driven growth recovery, however he gave the real estate sector , which could have helped him meet these objectives, a miss.
The real estate sector holds significant prominence as its contribution to the Indian GDP is bound to grow beyond 6%. Housing sector has linkages to more than 250 ancillary industries and employs more than 10% of our workforce. Having said that, industry, which is undergoing stress, was in immediate need of several concessions and support measures on easing of liquidity, relaxation of high tax structures and policy stimuli to facilitate a more congenial regulatory and development environment.
High costs of inflation and financing has choked demand and supply situation that is leading to a significant demand glut and impacting the social living conditions especially in fast growing geographies.
Nonetheless, a positive step forwards has been to allow foreign debt funding in affordable housing. Thankfully, which has been acknowledged by the government as housing is as much a critical need as food and education, two areas where government is quite proactive otherwise.
By not rolling back the 1% interest subsidy government has again upheld the need for state intervention in the affordable segment. Well it does miss the point of how inflation has taken that slab from 10 lakhs to somewhere close to at least 50% higher than that. This also happens to be a segment which gets easily impacted by interest rate fluctuations. So a wider scope and a stronger support mechanism could have been much appreciated.
Hike in indirect taxes will definitely impact the cost of delivery of real estate impacting overall demand. Further, shifts in tax slabs are too small to influence incremental demand.
No other positive measure to lend higher vibrancy into this sector was introduced or mentioned by Mr. Pranab Mukherjee. Any step towards attracting more FDI into the sector through relaxation of investment and exit norms providing a conducive environment for exits could have gone a long way in getting international interest back into Indian realty.