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Room for optimism as Budget sops stir housing sentiment

Syed Firdaus Ashraf in Bombay

Niranjan Hiranandani, managing director of the Hiranandani group, a leading property developer, is a very active man these days. No, he has not bagged a mega-building contract. His zest has been sparked by the February 27 Budget which offered several sops to the housing industry.

The sops, he points out, are just what the doctor ordered for the ailing industry that employs 12 per cent of the total work force in India and posts an annual turnover of Rs 500 billion upwards.

However, Hiranandani wonders how Finance Minister Yashwant Sinha will keep his promise of doing away with complicated things like the Stamp Duty Act and the controversial Urban Land Ceiling Regulation Act.

"The sops will boost the housing sector as the middle class will now buy houses what with so many tax incentives. But the stamp duty and the repeal of the ULCRA by the state governments still remain major hindrances to buying," he says.

Agrees Lalit Gandhi, chief managing director, Housing and Constructions Limited. "Until the state governments scrap stamp duty -- Madhya Pradesh has as high as 40 per cent duty -- genuine buyers will keep away from the market. For it is impossible for the middle class to buy/build houses when they have to pay a huge amount of stamp duty."

Gandhi points out that almost 50 per cent of the urban population require new houses. Yet, the industry strangely was not among the priority subjects of successive Central governments. Adds Murari Chaturvedi, editor of Accommodation Times, a fortnightly magazine on housing: "I remember, Dr Manmohan Singh once stated that housing is a non-productive industry."

In the First Plan period, the housing sector was allotted 34.5 per cent of the total plan outlay. But by the Eighth Plan period, the figure got squeezed to 7.3 per cent, in spite of soaring demand for housing.

Tabassum Inamdar, assistant director, Jardine Fleming, says the post-Budget positive sentiment in the housing industry is misplaced. "The problem today is the property developers do not have confidence because all their high investments of the last two-three years have not yielded matching returns. Also, to say that the sops will boost the cement, steel and other sectors is stretching things a bit too far."

She also disputes the theory that the middle class will go on a property-buying spree. "Despite the slump in real estate prices, houses are still beyond the means of the middle class. In India, builders seek very high margins without offering good quality property. So, genuine buyers are bound to keep off the market, more so because of the high stamp duty."

Observers trace the housing problems to the greedy speculators who pumped billions into the industry during the boom time of 1993-94, pushing up real estate prices to the sky.

As the slowdown gripped the economy, the speculators lost money elsewhere, thus drying up the channels of money that fuelled the real estate boom. In consequence, several housing projects still remain unfinished for lack of funds, causing heartburn to genuine buyers as well as developers.

Experts opine that the real estate market is now in the corrective mode with prices fluctuating, but add that it will take two years for the buying to resume.

According to a survey by the National Building Organisation, and a report by National Housing Bank, the total housing shortage will be 19.40 million units (12.76 million in rural areas and 6.64 million in urban areas) by 2001.

Akshaya Kumar, chief executive officer, Colliers Jardine (India) Property Services Limited, says, "Besides the sops, the government must also consider allowing foreign direct investment in housing."

Kumar points out that no private builder in India has the potential to build 300 flats on his/her own. "FDI is a must. With proper controls, FDI can provide respite to the Indian consumers."

Union minister for urban development, Ram Jethmalani, has also underlined the need for allowing FDI in housing, and the industry awaits concrete steps in this direction.

Gandhi says the housing finance companies have reduced interest rates on loans. "I hope activity would pick up. After all 269 sectors of Indian industry are dependent on the construction segment."

Summary of Budget sops for the housing industry

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