Building blocks

The surge in residential property sales in the first half of 2021, after a long period when they stayed static, is encouraging. Stakeholders, including property developers, construction workers, suppliers and the government stand to benefit from the return to growth. But care should be taken to check excessive construction backed by large leverage akin to the property market in China. Though the surge in sales is welcome, unbridled construction in the 2010 to 2015 period, leading to a large inventory of 4.5 lakh unsold units, continues to weigh on the sector. The Centre needs to continue its reforms in this sector to improve transparency and help home buyers. Launches and sales of residential units in the first quarter of this calendar year were at record levels as the pandemic increased the need for larger homes with more people working from home and children studying online. Low mortgage rates and attractive offers from developers have further boosted demand increasing sales of residential units across top eight cities by 185 per cent in the June quarter of 2021 and by 67 per cent in the first six months of this year compared to the corresponding periods in 2020. However, the income disruption in the lower income group was evident in falling demand for affordable houses and higher demand for houses in the middle-income and premium segments. In a few cities such as Mumbai, Pune and Bengaluru, government interventions such as stamp duty cuts have helped drive home sales and the Centre is rightly urging other States to deliver similar incentives to spur home sales.

The sector is set to become a large driver of the economy with its contribution to GDP projected to increase from the current 7 per cent to 13 per cent by 2025. With construction sector being the second largest employment generator, revival in this segment bodes well for consumption too. The pandemic-led changes in life-style and working conditions seem to have given a new lease of life to the residential real estate sector and the Centre should ensure that this boost is not nullified by avaricious practices of a few developers. While the sector is beginning to regain trust thanks to reforms such as establishment of the Real Estate Regulatory Authority and introduction of the Benami Act, the large inventory still remaining on the developers’ books indicates the extent to which home-buyers as well as developers have suffered losses due to the excesses in the pre-2015 period. The regulators need to keep a tight watch to avoid excessive leverage.

Also, despite the reforms rolled out in the last four years, the real estate sector is still quite opaque with home buyers being put through inordinate delays and long-drawn procedures. India’s real estate sector ranks quite low — 34th — on JLL and LaSalle’s Global Real Estate Transparency Index. The Centre should also keep up its efforts to increase affordable housing units in urban areas where shortage is expected to touch around 10 million units by 2030.

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