Real Estate body presses for use of Domestic materials by Developers
With the rupee constantly depreciating against the US dollar in recent times, serious concerns have been raised by National Real Estate Development Council (NAREDCO), an autonomous self-regulatory body under the control of the Ministry of Housing and Urban Poverty Alleviation. In a move aimed at appealing to developers, it recommended the use of construction materials manufactured domestically instead of importing them.
It has been generally seen that builders and developers import building and construction products and services worth $10 billion every year for their projects. It was reported by the Vice President of NAREDCO that the current situation where the rupee is steadily depreciating warranted that developers consider using domestic construction materials so as to reduce expenditure and promote the use of such products to reign in our economy which is currently on shaky ground. This practice would enable in strengthening the rupee considerably.
Currently, about 30-50% of the total project costs are incurred due to the import of products and services, which are mainly used for developing luxury commercial and residential projects. The imported materials include products like cement, flooring materials, home automation equipments etc. Besides, services like technology, consultancy, and architectural know how are also imported. Payments for these products are mostly made in dollars, which result in considerable increase in project costs. In the present scenario where the rupee is weakening against the US dollar, such expenses incurred by the builder would push the project cost higher, which would naturally be transferred to the buyers.
Speaking about the proposed Real Estate Regulation and Development Bill, the NAREDCO president stated that it would be a more practical option that would result in promoting domestic and cost-effective products. Usage of such products would effectively cut project costs considerably, thereby having a positive impact on the growth of the real estate industry. But, it was felt that even in its current form the proposed Bill has its own limitations as far as addressing many pertinent issues related to the industry are concerned.
The NAREDCO president further stated that real estate industry has welcomed the decision of the government as a positive one, which would benefit the industry in the long term as it would help in cutting costs. However, he felt that the momentum gained through the formulation of the Bill should be carried forward so as to resolved many long-standing issues faced by the industry. This move by the government would go a long way in enabling long delayed projects worth above Rs. 10,000 crore to be completed without any further delay. This would give a much needed boost to our sagging economy and put it back on the growth path.
With the recent proposal of the UPA government to allow FDI in realty sector, it will facilitate the inflow of foreign investments into the sector. However, it was felt that the current proposal of the government to allow FDI for projects with area above 50,000 sq meters should be modified so as to allow smaller project developers having projects with an area of upto 20,000 sq meters as well to benefit.
Due to the cash crunch faced by many smaller developers, many of their projects are long delayed. It does not help matters for them that banks are also unwilling to fund their projects since the necessary clearances and approvals have to be obtained from the government. The only ray of hope for such developers is to raise funds through private equity. However, if the government relents to reduce the project area limit, thereby facilitating FDI for such projects, it would be a major relief for such project developers.
