Grant Infrastructure Status To Real Estate Sector

Khushru Jijina, Managing Director, Indiareit Fund Advisors shares with us pre-budget wishlist for the real estate sector.

The past few budgets have not seen much by way of announcements directly benefiting the real estate sector. Our ‘wishlist’ for the forthcoming budget would include – 

1) Granting ‘infrastructure’ status to real estate, which in turn would directly enhance the availability of funding by way of the FDI, External Commercial Borrowing (ECB) and domestic bank lending routes.

2) Granting ‘industry’ status to real estate in recognition of the contribution of real estate to the GDP. Also, as above, formulate effective policies to provide more adequate sources of finance, be it bank debt at reduced rates and collateral values or broader scope for ECBs.

3) Reduce cost of borrowing for end users. A reduction in the base rate is necessary to help banks lower lending rates. Any budgetary measures should also be mirrored by the RBI in terms of easing repo rates and relaxing other policy instruments such as CRR, SLR to improve liquidity.

4) Implement ‘REIT’ guidelines. This would bring in much needed liquidity to the commercial market. It would also enable both foreign and domestic retail investors to access real estate as an asset class on a unit-by-unit basis with an appropriate open market exit mechanism.

5) Stem rise in input costs. Construction costs have increased multifold in recent years and developers are grappling with cost overruns despite slowing sales.

We see 2014 as being a turning point for the real estate industry. While some sectors and markets have suffered on account of lack of liquidity, slowdown in sales and delays in projects, there are specific pockets of opportunity for capital providers like us. We are subjecting ourselves to an extremely rigorous underwriting discipline in identifying new investment opportunities. However, government policy intervention is required, to put the industry as a whole back on the growth trajectory.

Our sector (private equity) plays the role of ‘enabling growth’ in real estate. Thus, coherent measures to enhance the overall liquidity in the system, rationalise the sanction and approval process and facilitate end-user demand would only help the industry and all the representative participants – be it end users, developers, investors, banks or private equity funds.