The Five Cardinal Mantras for Real Estate

Recommendations around real estate by Padma Bhushan Harish Salve, Senior Advocate - Supreme Court of India   Mantra 1 - Restart and Rebuild with inherent Trust on both sides (Government & Real Estate Sector) where an ecosystem forged on faith and non-hypocrisy is built.   Mantra 2 - Mindset Changes @ Different Levels. Ecosystem must change to promote transparency in business and new level of honesty. Government, Businesses and Citizens should be a ‘Partnership’ where the Budget of India should be an account of the Partnership with taxes as a revenue from each partner.   “Stop Romanticizing Land”. Land is an “Economic Resource” and ought to always treat as one. The Land Acquisition Laws have been one of the most regressive set of laws in India, which the Government must reconsider. Post Lockdown and in the new pandemic era, land is a resource for urbanization and urbanization is the only reality - it has to be accepted because India has 16 – 18% of the world population with 6 – 7% of the land. India enjoys a demographic dividend - average age group still in the 30s, but the same can turn into demographic nightmare, if land is continued to be ‘romanticized’ and adequate employment is not created by the Government through the Real Estate Sector.   Mantra 3 - Deficit Financing Deficit Financing is like a strong pain killer, it has its side effects, but it is necessary. It is obviously going to be expensive for the Government - Real Estate therefore ought to be the focal sector for the Government as it is the only sector which has a high multiplier effect. ‘Demand Effect’ of deficit financing is an important aspect of restarting Indian economy. The deficit finance that the Government of India has resorted to i.e. injecting $265 billion as Covid19 Relief Fund is a welcome measure given low interest rates and low oil prices.   Mantra 4 - Infusion and Access of Funds Given 83% of India works in the unorganized economy (as per calculation of Noble Prize winning Indian Economist) and a major chunk of those work in the Real Estate Sector, infusion of funds into the Real Estate Sector can act as a catalyst to revive the Indian economy for a high return is assured in this sector if money that is invested is cheap. India has ‘artificial’ interest rates and Real Estate Sector cannot be expected to borrow at higher rates as it will then not yield the expected results to ignite the Indian Economy. Laws such FEMA which have outlived its utility as well as fears / inhibitions which were the genesis of the foreign exchange regulatory laws have to be forgotten.   Allow direct access to foreign funds which are available at low interest rate have to be captured and if the Government is still unable to overcome its inhibitions to allow direct access then NBFCs should be allowed to borrow and regulate their arbitrage and given autonomy to refinance themselves.   What’s of utmost significance is the Cash Flow-linked Funding - If monies bearing lower interest rates are permitted to be infused, they can be continued to be lent to the Real Estate Sector at the same or marginally lower rates as on today, the lender will be in a position to provide a minimum of 2 [two] / 3 [three] years moratorium and thereafter still earn the balance interest at the same rate.   A two-pronged approach is required to spur real estate demand: Buyers’ EMIs need to be divided by two with no extra interest burden and buyers allowed to cover it up in 2 years. If funds are available to the Real Estate Sector at one-third the current interest rate, the Industry will be able to give buyers three times the moratorium without any loss. For buyers, it will be a huge incentive to continue paying the deferred instalment over a predetermined period.   Mantra 5 - Legal Reforms & Self-Regulation Land Laws need a serious change and reformation coupled with utmost clarity. Public Policies must be stable and less susceptible to politics, more BITs for foreign investments must be in place to offset bureaucratic turbulence and the enforcement system like the tax regulators and the Enforcement Directorate must be kept at bay for every trifle. Investor resistance for India is based on not wanting to get into the thicket of Indian litigation which is notorious.