In search of dream homes 

In search of dream homes

Article:

The article discusses the issues with residential real estate sector in India and suggests measures to address the same.

Analysis

Issues with the housing market:

1. Residential unit sales have dropped by around 40% from the average of 2013-14 to 2017. (Indian Express, 24^Th March 2018). Further, the demand for residential real estates have dropped considerably
2. The Real estate companies have been facing capital crunch as banks struggling with bad loans and frauds are hesitant to provide loans. Further, liquidity crisis in Non-bank finance Companies (NBFCs) has aggravated the problem of funds.
3. As a result, builders have been struggling to complete projects and delay in completion has increased effective cost of homes for buyers.

Reasons for poor state of housing market:

1. There is oversupply in most real estate pockets of India especially in Delhi-NCR and Mumbai Metropolitan Region
2. There is overemphasis on high-margin premium homes that most Indians can’t afford
3. the ratio of rental and current home prices is very low (<2% versus home loan interest cost at 8.5% or so). Thus, it is not rational to buy properties; even for people who can afford them.
4. The cost of land (key input to real estate) is high as a result of which price of houses have been high making it unaffordable to average Indian households
5. Unethical business practices by real estate companies have raised distrust and concern among homebuyers leading to rising number of consumer court cases against builders

Steps to be taken:

1. Real Estate (Regulation and Development) Act (RERA) should be effectively implemented by all states
2. As a temporary measurement, the government should reduce short-term and long-term capital gains taxes to 15% and 10% respectively to attract new buyers and investors and do away the need for cash transactions. Further, lowering capital gains tax on property transactions will help curb the black economy and revive realty demand
3. Stamp duties and registration charges should be reduced considerably
4. Instead of high-margin premium homes, real estate companies should focus on affordable homes
5. Further, there is a need to balance residential and commercial real estate development.

Additional Information

Real Estate (Regulation and Development) Act (RERA), 2016

• RERA, 2016 is a central legislation which aims to regulate the real estate sector. It seeks to empower and protect property consumers and make transactions fair and transparent.
• The RERA Act was enacted under Entry 6 and 7 (dealing with contracts and the transfer of property) of the Concurrent List of the Constitution of India

Objectives of RERA

• Enhance transparency and accountability in real estate and housing transactions
• Boost domestic and foreign investment in the real estate sector
• Provide uniform regulatory environment to ensure speedy adjudication of disputes
• Promote orderly growth through efficient project execution and standardization;
• Offer single window system of clearance for real estate projects
• Empower and protect the right of home buyers