The real estate segment in India may be seen as going towards a consolidation phase, with the stronger players taking over the market and the faulty ones fading away, says Srinivasan Gopalan, Group CEO, Ozone Group in an email interview with Corporate Ethos.
The Goods and Services Tax (GST) is undoubtedly the most ground-breaking tax-related reform in several decades. This effective measure is sure to exclude the inconsistent taxation structures and will definitely have a profound effect on India’s financial prospects.
Looking at its impact on the residential property segment, if costs go higher under GST, the current home loan rates could ease the effect to some extent. Coming to the commercial real estate segment, with the current service tax for commercial rents being at 15 percent, GST would be possibly neutral.
The affordable housing sector being presently exempted from service tax is likely to present a win-win situation under the GST regime. GST is a significant lift to the economy. With an effective economy, there will definitely be greater demand for real estate, and it will, in turn, be a blessing in disguise for the buyers and developers alike.
Getting GST on board will aid in cutting down cash modules in construction since the inputs have to be tracked from listed vendors to incur input tax credits. This progressive step will assertively help in cutting down on the components of black money present in the Indian real estate, thus promoting liquidity in the sphere of Indian realty. The construction process of a building falls under the bracket of 12% tax with complete input tax credit (ITC) subject to no reimbursement in case of excess of ITC. Hence, the basic cost involved in construction is expected to come down.
Additionally, better competence in logistics should also aid in reducing values of goods and raw materials. This will further lower the production cost of the final product passed on to the consumer. The provisions of input credit, if managed proficiently, will assist to recover cash-flow of the developers. The ITC facility is sure to condense the price of raw material procurement.
Over the next decade, we intend to increase our footprint of residential real estate in the cities we are currently present in. The cities are Bangalore, Chennai, Mumbai and Goa. While residential real estate remains our main focus area, in parallel, we are also taking steps towards creating a rent yielding portfolio of at least 10 million square feet.
Also, with the banking system being under the stress of NPAs and with the advent of RERA, there are a number of opportunities to takeover these stressed assets at attractive valuations. This is an opportunistic play and we are keen to partner with other developers and financial institutions to make it a win-win strategy for all.
We recently launched our first project in Mumbai and have added 3 more projects in Mumbai since launch. Currently, we are present in Bangalore, Chennai, Mumbai and Goa. We do plan to expand and go beyond the geographies in which we already operate in. The industry is going through a phase of consolidation and we will not be aggressive in markets we do not understand.
The Indian property market has matured and established itself as a significant mechanism in the country’s ever-growing economy. In the coming years, the development of the Indian real estate market will be supplemented by the advance in the corporate sector leading to an upsurge in the demand for office space, along with providing housing accommodations in large towns and cities.
Overseas construction companies with superior and inexpensive access to assets have already started casting their eye over potential locations. This progressive drive in the coming years will result in enhanced progress and expansion. The pace at which modifications are being executed, the optimistic response of the market and pumping in of resources by investors and developers may witness some path-breaking changes in the market.
Obtainability of equity funds will play a major role in carving the bright future of Indian real estate. Overall, we will perceive the segment going through a consolidation phase with the stronger players taking over the market and fading away of the faulty ones.