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7th Pay Commission: Effect on property market

Realtors say recommendation of the 7th Pay Commission will serve as a new hope for the realty sector as hike in salaries of central government employees is expected to boost investment in new homes

The Union Cabinet has approved the recommendations of the 7th Pay Commission which is likely to play crucial role in the real estate dynamics. This move has brought cheer to 3.4 crore current government employees and pensioners. It is expected that new pay scale will provide much-needed boost to the demand side, adding another milestone decision in the revival of Indian realty market.

New pay panel’s recommendations:

The government has approved a hefty hike in salary and pension of central government employees. The recommended 14.27 per cent hike in basic salary and 23.55 per cent hike including HRA, TA and several other allowances could spur demand for housing.

As the government employee always feel safe to park their money either in real estate or immovable properties, so the increase in income is going to bring massive change to overall urban real estate and Delhi NCR market could be the first beneficiary of this.

According to new pay panel, the starting salary of a government employee is fixed Rs 18,000, against Rs 7,000 up till now. On the other hand, the maximum salary range, will be increased to Rs 2,25,000 (for the upper range) to Rs 2,50,000 (for officers in the rank of the cabinet secretary), from Rs 90,000 at present.

Industry Speak

Sumit Berry, MD, BDI Group, said, “With the cabinet giving nod to the implementation of 7th pay commission, there will be good amount of fund flows in the economy. Apart from increase in demand for consumer durable goods, real estate sector will also be a big beneficiary. The demand for homes is expected to go high with increased purchasing power in the hands of large chunk of the population. Demand for home loans will also increase with increased incomes. With a higher disposable income, the demand for properties might witness an upsurge. This move by raising the affordability of government workers would certainly benefit demand and home ownership sentiments.

According to Sushant Muttreja, chairman, Cosmic Group, “The real estate sector is pinning lot of hopes on 7th Pay Commission as higher incomes may lead to recovery in property demands. At present when interest rates are low and property rates are stable, salary hike will play a big role in enhancing the demand for housing. With more funds in hand, people will look to invest in assets such as properties which can give them better returns in future. The income inflow is also expected to boost the demand for properties in Tier 2 and Tier 3 cities as well.

Impact on real estate

The new pay scale is going to benefit more than one crore government employees most likely they would be getting arrears this year only. Experts say that they will surely look to the property market to invest part of their increased income. This move will bring more liquidity into the realty market, which is reeling under a slump over the past couple of years.