Cut in constructing premium by Maha will result in 10-12% drop in prices of homes: Krish Raveshia-Azlo Realty
The cut in constructing premium by Maharashtra will result in 10-12 percent reduction in prices of homes for end users, according to Krish Raveshia, CEO-Azlo Realty. In an exclusive interview to RealtynInfra.com, Raveshia talks about various facts of the real estate industry and his expectations from the upcoming Budget. Here are the excerpts:
1. What is the impact of the recent cut in construction premium by the Maharashtra government on the sector?
The announcement by the Maharashtra government to reduce the construction premium by half will have a positive impact on the sector. It will help lower the cost of development and end-price for customers. A step towards making real estate affordable, a long-standing dream of the common man as well as the policymakers. The premiums levied by the state government have always been a significant cost for any real estate project. In Mumbai, premiums alone constitute 25-35 percent of a project's cost. This, along with other reform measures, will further boost demand for real estate.
2. How much of the benefits will accrue for developers due to cut in construction premium?
The move is expected to accrue a benefit of about 10-12 percent in the form of a reduction in the final construction costs for the developers. However, as per the recommendation of the Deepak Parekh Committee report approved by the state government, the developers will be absorbing the stamp duty applicable in the eligible project till December 2021.
3. How much will actually be passed on to your buyers, break-up, and the actual date from when these benefits will be passed on, till when?
Actual pass-through of the lower construction premium plus zero stamp duty will translate into a 7-10 percent net savings for buyers, which is humongous, especially for a city like Mumbai. The benefits will likely be passed on from next month and will be applicable till the end of the year.
4. What will be the impact of zero stamp duty (till the end of 2021) on demand?
We have already witnessed the impact of a reduction in the stamp duty on demand, it resulted in a stellar set of sales numbers from September to December 2020. It was a perfect example of a sound policy to revive the market. The developers absorbing the applicable stamp duty till the end of the current calendar year will likely have the same impact on sales. We are in for a robust demand scenario in 2021.
5. What is your expectation from the Union budget?
The Union Budget 2021 will be presented at a time when India is recovering from the pandemic and the vaccination drive is in full flow across the country. Therefore, this budget will be a key to lay the roadmap for the post COVID era. We would like the Honourable Finance Minister to focus on measures like continuing with the current low interest and easy system liquidity regime, which are major criteria to boost demand. Steps like enhancing the limit of deduction of income tax for principal repayment on home loans, a separate exemption for principal repayment on home loans to incentivize investment in real estate.
Further, an investment of up to Rs 50,000 in REITs should be allowed as a deduction under Section 80C, also the holding period for REITs to qualify for long-term capital gain should be reduced from 36 months to 12 months, a step which will spur retail investment in a value-creating instrument like REITs. Lastly, enhancement in ease of doing business with limited approvals required to develop a project within a defined timeframe, steps which will boost demand for real estate and help achieve a faster recovery.
6. What changes are you seeing in demand change by homebuyers in terms of design and layout of the houses in wake of the corona pandemic?
There is a constant demand for structures that are efficient, uniquely designed, and well-equipped with world-class amenities. With the pandemic in the picture, wellness has become a key aspect of a real estate project, be it residential or commercial. Developers should look at more dynamic layouts, in-house fitness or entertainment zone. For sustainable and financial feasibility developers must create a sustainable, evolving project that is state of the art and caters to the changing need of the end-users.
7. Finally, what is your view on the outlook for the next 12-18 months for CRE & RRE. Do you see pricing power coming back in near future?
The Indian Commercial Real Estate (CRE) and Residential Real Estate (RRE) sectors have shown resilience throughout the pandemic. In terms of commercial real estate, satellite offices in non-conventional micro-markets will be absorbed faster and more effectively. Despite the short-term disruptions, India's commercial real estate sector continues to attract interest from occupiers and investors looking at the long-term horizon.
And as we move forward, 2021 will see a steady flow of investment as easy liquidity by global central banks will ensure interest rates are low and funds will chase investments with high yields. Prospects of economic growth, conducive policies, and technology-driven innovations will play a crucial role.