How Will Real Estate Sector Gain From Industry Status?

How Will Real Estate Sector Gain From Industry Status?

How Will Real Estate Sector Gain From Industry Status?
All the sector needs at present is coming of established corporates, that have a brand visibility and consumer trust, into the sector and win buyers’ confidence here, too. (Wikimedia)

In India, real estate is a darling among investors. It is considered the safest option to make your money grow.

Towards the beginning of 2003, real estate prices witnessed an extraordinary rise, not just in metro cities but also in Tier-II and -III cities. This was at a time when India's economy was picking up. The purchasing power of potential home buyers was increasing as the economy boomed, salaries rose, and banks began funding more than ever. To keep up with the surging demand, all developers launched projects.

This trend continued for the next five years. But, the global economic slowdown that followed the fall of Lehman Brothers in the year 2008 brought a slow phase for India's real estate sector, too.

This had a negative impact on buyers' sentiment, and developers were also hit. That is where the necessity of an industry status came into focus.

Why the demand for an 'industry' status?

The crisis, back in 2008, led to a funding crunch and developers struggled to complete their projects. This was compounded by rising construction costs, rising inflation and poor management, along with a lack of commitment from developers.

The sector is still witnessing a slow growth, which is affecting the developers and buyers alike. This can be seen in the inventory pile where projects are ready for possession but the home buyers are sceptical to make a purchase. A reason why the sector feels an immediate need for an 'industry' status is that the status will help the sector overcome the negative perception and regain lost trust among the home-buying community, and also their market value.

What does it really mean?

At present, there is a massive trust deficit between developers and home buyers. The loss of faith isn't an overnight phenomenon; it has been built up over a period of time.

Developers in the past have launched huge township projects and have used customer advances to buy land or launch other projects, delaying construction by months and even years.

Now, the affected buyer community is not ready to believe in them. This is a distressing factor. If the sector gets an industry status, it will mark a great transformation in the mindset of home buyers. 

Could companies help gain buyers' confidence?

The coming years are going to be critical for the sector's revival. Many major corporate groups like Tata, Godrej, Mahindra and Bharti have paved their place in the real estate business and the presence of these players is likely to play a big role in its resurrection. There is a possibility of other industry leaders entering the sector, too.

The involvement of already established companies is expected to call for a big change in the otherwise slowing real estate sector. It is possible that real estate will finally receive the industry status it has been demanding for years.

All the sector needs at present is an active role by established corporate entities with a brand visibility and consumer trust. That could help revive buyers' confidence here.

Steps the government is taking

The government has been trying to clean the system to support the real estate sector and help it regain its lost status. The Real Estate (Regulation and Development) Act, 2016, could prove to be a revolutionary initiative to protect the interest of home buyers, thus building their confidence in the sector. The law aims to promote fair play in real estate transactions and ensure timely execution of projects.

With RERA, a uniform regulatory environment is expected to take over, thereby ensuring speedy settlement of disputes and methodical growth of the sector. It is likely to boost both domestic and foreign investment in the sector and plug the loopholes.

Last Updated: Wed Jul 27 2016

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