On Monday, the Ministry of Housing and Urban Affairs emphasized that real estate developers in India ought to place greater reliance on financing from the banking system instead of being overly dependent on homeowners' investments.
Manoj Joshi, the Secretary of the Ministry of Housing and Urban Affairs (MoHUA), emphasized the requirement for a reliable framework to distinguish between favorable and unfavorable projects. This distinction is crucial to facilitate the real estate sector's access to capital from banks, as he highlighted during his address at the CII Annual Conclave on Indian Real Estate 2023.
Joshi raised concerns about the existing financing structure in which contractors and vendors associated with developers heavily depend on advances from government clients or the developers themselves. This reliance often results in a scarcity of working capital throughout the supply chain. As a consequence, projects encounter delays, increased costs, inefficiencies, and extended completion timelines. Recognizing the significance of this crucial segment of the real estate sector, Joshi emphasized the need to provide adequate capital to prevent any hindrance to economic growth.
Joshi acknowledged the presence of misconduct within the real estate sector, which has contributed to the cautious approach of the banking sector toward investing in it. He proposed the implementation of a market-based borrowing system that would effectively differentiate between trustworthy and untrustworthy borrowers. On the other hand, he observed that the prevalence of government-controlled banking has posed a difficulty in discerning dependable and undependable borrowers. This lack of differentiation has resulted in a general reluctance to provide financing to the real estate sector.
In order to tackle this challenge, Joshi emphasized the need for the establishment of a credible framework, potentially in the form of a rating system. Such a framework would play a vital role in effectively distinguishing between favorable and unfavorable projects, ultimately facilitating the real estate sector's access to capital from banks.
Joshi further addressed the importance of establishing efficient systems within government bodies like the Central Public Works Department (CPWD) and the National Buildings Construction Corporation (NBCC). He emphasized the significance of ensuring prompt payments to contractors and vendors. In order to streamline the process, the government is actively exploring the possibility of directly providing funds to vendors. This initiative aims to enhance efficiency and facilitate timely transactions within the real estate sector.
The secretary also underscored the significance of Real Estate Regulatory Authorities (RERAs) in guaranteeing the timely delivery of homes to consumers. He emphasized the critical role of banking systems in providing financing that enables developers to accelerate construction processes and fulfill their commitments of delivering homes as promised. By emphasizing this need, he aimed to promote accountability and timely completion within the real estate sector to meet the expectations of homebuyers.
Neel Raheja, Chairman of the CII National Committee on Real Estate and Housing, expressed that the real estate sector in India is poised to experience a surge in demand for affordable housing units. The focus is shifting towards providing low-cost options that prioritize affordability. Additionally, Raheja highlighted that the services sector, encompassing industries such as BPO, high-end technology work, pharmaceuticals, and data centers, will play a crucial role in driving growth in the real estate sector. This recognition underscores the influence of these sectors in shaping the future of real estate development in India.
In addition, industry experts have emphasized the positive outcomes resulting from significant reforms such as the implementation of the Real Estate (Regulation and Development) Act (RERA), the introduction of the Goods and Services Tax (GST), the establishment of a framework for Real Estate Investment Trusts (REITs), and the digitization of land records. These reforms have played a pivotal role in stimulating growth within the real estate sector. They have notably enhanced transparency, streamlined processes, fostered investor confidence, and facilitated overall advancements in the industry.
The Ministry of Housing and Urban Affairs highlighted the necessity for urban planning to evolve in Tier 2 and Tier 3 cities, emphasizing that it is a crucial area requiring the government's attention and priority. This recognition underscores the significance of ensuring well-structured and sustainable urban development in smaller cities to promote balanced growth and address the unique needs and challenges of these regions.
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