7th Pay Commission pay scale hike gives fresh hope to realty sector; top 5 points to note

By: FE Online |  December 6, 2015 1:44 PM

7th Pay Commission pay scale and pension report effect: The report's hefty pay and pension hike recommendations for Central government employees and pensioners expected to give fresh hope to real estate market.

7th Pay Commission pay scale and pension report effect: While the government’s decision to relax FDI norms in real estate last month is expected to play a critical role in addressing the concerns on the supply side, the recommendations of the 7th Pay Commission is being termed a potential game changer on the demand side – real estate market is burdened with a large volume of unsold inventory and as bureaucrats scramble to buy homes, the inventory will reduce significantly. Here are 5 points to note :

1) The demand might witness a surge as a higher disposable income in the hands of a substantial chunk of the population is likely to motivate investment in residential property.

2) A report prepared by Credit Suisse says that the 7th Pay Commission recommendations will have a significant impact on the real estate cycle in small towns as more than 80 per cent of Central government employees reside in tier II, III cities.

3) The report analysing the impact of the 7th Pay Commission recommendations points out that the housing and transportation sectors will be the biggest beneficiaries of the rise in income and spending capacity of government employees. Credit Suisse says that out of the total state and central employees, the 60 lakh, who will see around Rs 24,000 salary increase per month, are likely to be instrumental in lifting the housing sector demand.

4) The report states that while spending on food and transportation rises the most when disposable incomes increase for those between the 10th and 11th fractiles, it also pointed to the fact that as households move from the 11th to the 12th fractile (8.3 per cent of households), the spend on rent rises 3.1 times and there is a similar impact on home ownership too.

5) While the report says that impact on housing and real estate will be substantial and lift demand, there are some who feel that the benefits may not be huge. “I think the Pay Commission recommendations will be inflationary so the actual benefit that may come to employees may only be around 10 per cent as against a hike of 23.5 per cent. And if the developers decide to increase the price then it would be a dampener,” said Samantak Das, chief economist & national director, Knight Frank India.