New Delhi: The Real Estate Association President Rohit Gera has asked the government to give tax relaxation to single home owners in coming budget.
The Indian real estate industry has been under stress for over the past year. Real estate development is a highly capital intensive business and for the most part, the residential segment is funded through customer sales proceeds. Developers therefore do their budgeting with this assumption and therefore, for the most part, finance costs on construction of the project are not factored in the proforma profit calculations.
As a result, when sales are slow as they have been, developers (who have access to construction finance) are forced to borrow and the interest costs eat into profitability. This gets further compounded when construction costs rise more than the increases in the sale prices of the apartments. This is the scenario the real estate industry has found itself in over the last year. Costs are up, sales are down. This has led to stress for the real estate developers. In 2009, in spite of the continuing negative sentiment based on the global meltdown, the UPA re-election led to an instant impact to the stock and real estate markets. This time however, even though the mandate has been far more decisive, the real estate segment has not seen the turn in customer sentiment and purchase. I believe this is because people are waiting to actually see the benefits to their pockets of the “ache din” promise by the government. Once this happens, the existing need for homes will translate into demand.
