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Relaxation in FDI will revive realty market, says Earth Infrastructures Ltd

Often referred to as the growth engine of the economy, real estate industry has been one of the fastest growing sectors in India and affects overall growth and development. The sector has its direct or indirect impact on around 250 other industries. So any fluctuation in real estate sectors has the ripple effects felt in rest of the sectors. Analysts at Earth Infrastructures Ltd say that a unit increase in realty sector leads to a 5 fold cumulative increment.

As per a report, the share of real estate services in total GDP increased to 9.2% in FY09 from 8.9% in FY05. Economists predict this could be as high as 13% by FY25. It is the second largest employment generator after agriculture. The housing segment alone estimates to account for more than 9% of the country’s employment.

The real estate and construction sector would remain one of the largest employers in the economy as the annual employment opportunities generated in the sector may increase from 7.6 million in 2013 to almost 17.2 million in 2025.

However, the prevalent economic situation and depreciation of Indian National Rupee against USD have raised skepticism on the prospects of this sector. There is no provision of affordable funding, no provision of subsidized raw materials. An official spokesperson for Earth Infrastructures Ltd says,  “ Though FDI allowed in this sector but the rules and regulations controlling a flow of FDI restrict developers from using it in the desired manner which may benefit them, the customers and the economy at large. The Looking at the present scenario, FDI appears as the only ray of hope for the revival of this sector, provided some of the rules and policies remain lenient.   “

At present, the costs of key inputs for real estate development have increased by 7-15%, labor cost has surged by 10-15% and cost of steel and cement has risen by 7%. The cumulative impact has compelled the rates to increase but a subsequent fall in sales. Much to the desolation, recent guidelines introduced by RBI have made real estate lending even more expensive and cumbersome. With the increased price and decreased sales, investors are also backing off from the sector, leaving the real estate in the jeopardy.