Industry status

The status of the industry will give the real estate sector a boost

The call for “industry status” for real estate has been heard time and time again for years. This is a long-standing demand of the sector, which was only partially met when the affordable housing segment received industry status in 2018. While the term “industry status” is often used used, and more recently what does it really mean?

Meaning of “industry status”

The term “status of the industry” has in fact not been specifically defined in any legislation in India. The attribution of the status of industry basically implies an inscription in the industrial policy of the state / central.

To put this question in perspective, here are two recently reported cases of state governments conferring industry status.

In an attempt to attract industries to the state, the government of Uttar Pradesh (reported May 12) has granted “industry status” to the warehousing and logistics sector. According to the UP commissioner for infrastructure and industrial development, industrial land use charges will now be applicable to parks in the UP’s warehousing and logistics sector, thus reducing the cost of setting up .

Soon after, on May 22, Mizoram became the first state to grant industry status to the sport. This initiative aims to further strengthen sports activities by attracting investment. Also, henceforth, industrial benefits such as subsidies and banking facilities will be extended to sports in the state.

With the status of industry, state and central agencies understand and regard a sector as a distinct and coherent sector, with special regimes and subsidies corresponding to its distinct demands and requirements. Generally speaking, sectors that have been granted industry status also enjoy legal and procedural advantages such as capital and interest subsidies, one-stop / rapid clearance processes for licenses, exemptions or exemptions. relief from stamp duties, tariffs and other duties.

As for the real estate sector, the immediate benefits would be: (i) to obtain loans with less difficulty at lower interest rates; (ii) allow large investors to be financial partners; (iii) attract equity investments in the sector; and (iv) allow promoters to refinance their existing debts.

Getting down to business, the biggest hurdle for real estate developers today is the cost of capital. Anything that contributes to a reduction in the cost of capital would have a positive impact on the overall cost of the project, and this benefit may in turn be passed on in part to buyers.

Risks and realities

The growth potential of the real estate sector in India is undeniable. However, the sector is plagued by shortcomings that have so far served as obstacles to the granting of industry status and ultimately to its growth and contribution to the Indian economy.

Over the years, a common complaint against the real estate industry has been the lack of transparency in the system. Consumers were forced to trust a manufacturer and sometimes burned their fingers. In fact, to counter this, the real estate landscape has seen a lot of regulatory and procedural changes in recent times.

For example, the advent of the Real Estate Regulatory Authority (RERA), which has brought much needed transparency and aims to protect the interests of buyers. The lack of regulation and third-party oversight had led to an opaque business model and the potential for malpractice was ripe. Although steps have been taken in the right direction, there is still a long way to go before these issues are resolved.

Another stumbling block is the systemic issues that arise when trying to find title to a property in India. Due to the nature of our estate laws and the myriad of ways the missing links appear in the chain of property transmission, investing in real estate is viewed by many as a risky business. While the government has already implemented digital property transfer registration systems in most cities, the mistakes of the past still haunt us.

For example, even after obtaining a certificate of charge indicating a clear route of transfer of ownership, it is not uncommon to find that a few years ago a transfer took place without the consent of one or more brothers. and sisters of a family, who were legally co-owners at the time. A discovery like this, while not impossible to overcome, can certainly make the process more painful.

Issues of lack of transparency, a cumbersome approval process, and flawed title issues affect both sides, with foreign investors sometimes shying away from the proposal and also diminishing client confidence in a project. Ultimately, it can be argued that issues like these prevent the sector from reaching its full potential and have the effect of blocking industry recognition.

It is a known fact that developers have been experiencing big cash flow problems for the past few years. While this is mainly due to the build-up of unsold inventory due to asymmetric demand for housing, the Covid-19 pandemic has also had its impact, worsening the situation. The status of the industry at this point would provide the relief developers need and give them the opportunity to focus on increasing sales, offloading existing unsold inventory, and breaking the cycle they are currently trapped in.

Sector overhaul or industry status?

There really shouldn’t be a debate on this. The decision to grant “industry status” should not depend on all of the above (and more) issues being resolved first. It’s too late for that, all things considered, not to mention the more recent hit the pandemic has dealt. Instead, a hand-in-hand approach would be ideal, because while an industry overhaul may be needed, the benefits of Industry Status are needed now.

The granting of industry status will give the real estate sector the boost it needs right now, with its recognition as a priority sector by the RBI. Add to that a streamlined approval process for residential projects and increased transparency in the sector and we would see an increase in the country’s GDP, with increased employment opportunities and lower construction costs. This optimal result being a win-win situation for consumers, developers and the economy.

The author is a partner of VB Legal, Advocates. Opinions are personal.