A long-standing expectation of the real estate sector is the coveted infrastructure tag. Any proposal in Budget 2013-14 that favours the idea has to bring on board the central bank that has its doubts
With Budget day less than two weeks away, the real estate sector is hoping that the finance minister will blink this time around to its long-standing demand: giving infrastructure status. This is a demand stretching back at least two decades with an eye on the benefits that this coveted tag brings along. The single biggest benefit is the easier access to funds.
To date, the only industries that have enjoyed infrastructure status were roads and highway construction, ports, airports, rapid public transport systems, and so on. Real estate was not granted infrastructure status, despite the fact that it is a significant growth driver for the economy, generating countless jobs and directly catering to the needs of individuals. It is infrastructure in the truest sense, as it deals with building the very framework of the nation and its economy, says Anuj Puri, chairman and country head, Jones Lang LaSalle India.
An RICS study claims the sector would contribute about 18 per cent to the value add for the GDP by 2020.
Infrastructure status would immediately reduce the cost of loans from banks. The Reserve Bank of India (RBI) currently classifies lending to large segments of the real estate sector as a high risk category. This means banks have to set aside more capital for each rupee they give as loan to the sector. The only exception is loans to individuals for houses that cost Rs 10 lakh and below which come under that of priority sector lending.
In addition, there are two other benefits for the sector. Infrastructure sector enjoys moratorium period on repayment of loans along with concessional rates, which helps in making these investments attractive and the project viable. This move would attract more foreign direct investment as investors would take note of the special status, which assures them about the safety of their investments, says Sanjay Dutt, executive managing director, South Asia, Cushman & Wakefield.
Unsaid is another advantage. The tag would make it possible for real estate developers to sell their loans to long-term financial institutions. This will clean up their balance sheets, which means their debt overhang comes down.
Developers claim the move would enable them to pass on the benefits to