The struggling real estate market in the country could get a major relief once the Seventh Central Pay Commission recommendations are implemented by the government as an increase in salaries of government employees is likely to boost the demand for home purchases.
While, on the supply side, the country's real estate sector is likely to be supported by recent easing of foreign direct investment (FDI) norms by the government, the implementation of the pay panel proposals is being seen as a "potential game changer" on the demand side.
"The 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," said analysts at Credit Suisse in a report.
The Seventh Pay Commission, headed by Justice AK Mathur, recommended a 16% hike in basic salary and a 63% increase in allowances for government employees, taking the overall hike in salaries to 23.55%.
The recommendations are expected to rise in incomes of 3.4 crore employees and pensioners once the state and central governments implement them. Housing and transport sectors are expected to be the biggest beneficiaries from an increase in incomes of government employees.
"Altogether around 80 per cent of the beneficiaries would see an increase of less than Rs10,000 per month and account for 50 per cent of the payout. The rest would get around Rs 24,000 more every month on an average," said the report prepared by Neelkanth Mishra, Prateek Singh and Ravi Shankar of Credit Suisse.
The report said that those employees who who will see an increase in monthly salary by around Rs 24,000 are likely to play a key role in pushing up the demand in the housing sector.
"Most of this impact is likely in the smaller cities (only 20 per cent of central government employment is in the tier I cities). The Pay Commission recommendation, in our view, is an important milestone in the real-estate cycle in the smaller towns, recent weakness was likely the effect of the last pay commission fading," The Indian Express quoted the Credit Suisse report as saying.