With India slated to become the fifth largest economy in the world in the next few years, the world is looking at India for investment options for better yields. The recent government announcement in the Budget to ease the norms for debt financing of REITs and InVITs will pave the way for the country to have parity with developed nations for institutional financing in real estate assets and also help investors get higher returns.
The move will unleash the investment potential in the realty market, especially the income generating commercial properties which have been so far masked from revealing their true potential. The country has a number of Grade A offices and other commercial properties that have been yielding decent returns, but with the implementation of the Budget announcement, these properties will see a new dynamism in the investment scenario for them and also produce far better yields in the near future. The measures announced in the Budget will pave the way for more participation by FPIs and FIIs in the Indian real estate market which has been heavily bruised in the last few quarters due to the pandemic.
Easing of norms for InVITs will also spur the job creation process in the country and will especially benefit the labour workforce that was affected in the lockdown period. The migrant workers, who shoulder much of the responsibility of running the economy of big cities, will also be benefitted and their payout for homes in metros is expected to come down now.
The thrust on the infrastructure augurs well for several sectors as well as infrastructure projects have a major multiplier effect. Fast development of infrastructure like highways, metro projects and others will ensure the real estate industry gets an option to spread its wings to the outskirts of city limits as these areas will get connectivity.
This will also lead to cost optimization for real estate developers in the process of land acquisition and lower price tags of homes for end users. Better infrastructure will also lead to better safety and security of the people living in suburbs or outside city limits.
Government underscoring the need to support residential real estate has boosted the morale of the developer fraternity and will incentivize them in improving their portfolio of homes in general and affordable houses in particular. The developer community now hopes that the definition of the affordable homes will be expanded by the government soon so as to include houses costing up to Rs 85 lakh.
The government has shown its commitment to the real estate industry in more ways than one in Budget 2021. However, certain issues that got ignored by the government include setting up of a single-window clearance system for approval of projects. This has been a long standing demand of the real estate companies. Also, allowing 100% FDI in completed housing projects, something that has been overlooked in the Budget, will go a long way in improvement of designs and infrastructure of residential projects in the country.
Authored by Akshay Taneja, TDI Infratech