Economic, taxation, industry policy reforms in realty sector by govt led to serious liquidity crisis: Niranjan Hiranandani

As an industry stalwart, Niranjan Hiranandani, National President – NAREDCO, has seen the ups and downs of the real estate industry for many decades now. In an interview with RealtynInfra.com, he sheds some light on the current expectations and issues. Here are the excerpts:

Q) What are the expectations from the festive season this year? Will it at par with last year?

After every dark night comes the light at dawn; the lockdowns induced by the COVID-19 pandemic impacted the economy in general and real estate in particular. The ‘mission unlock’ has seen a revival; measures by stakeholders have been positive. Real estate is sentiment driven and the festive season fuels the sharp demand and translating into the bumper sales. A recent report on real estate was aptly titled 'Indian Housing Sector: Disrupted, Transformed & Recovering', reflects the renewed recovery. 

The pandemic life has underlined the enormous significance of owning the property on merits of stability, safety and security. In order to accommodate the new normal norms of work, study and wellness from home, the demand needle has entered an optimistic zone. The old age adage of ‘Roti, Kapda aur Makaan’ stood testimony to the challenging times where in housing has been acknowledged as a crucial necessity. 

This has prompted the first time home buyers to shift from rental accommodation or already a home owner to upgrade its lifestyle adhering to the new normal mandate. The concept of township living has augmented in the backdrop of convenience, comfort and community living being offered all at one stop destination- the 3 major factors contributing for home sales this festive season. In order to leverage the conducive market conditions, branded developers with proven track record who offers ready to move in properties enjoys the cutting edge position. This festive reason is complemented with reduced stamp duty, lowered risk weightage by RBI, historic low interest rates, deal sweeteners by the developers, flexi payment schemes by the lending institutions making it an apt time to buy. 

Thus, festive season is the ideal time to gain the sales momentum especially after economic activities has regained post pandemic disruption and home buyers should take advantage of the situation which is ‘advantage buyer’ – and buy their home in this festive season.

 

Q) What are the expectations from 2021?

Every challenge, when faced squarely, shows positive results. Real estate has witnessed a gradual increase in quantum of sales since June 2020; the trend so far reflects in a ‘growth curve’. The upshot impact of Governments fiscal stimulus, RBI’s policy innovative measures and deal sweeteners doled by the developers will reflect as a positive outcome by FY 2021. 

It is a known fact that Indian real estate has been stumbling with policy reboot since 2016 resulting in low business sentiments. The sustained efforts of the central government like additional deduction on loan interest, GST rate cut, alternative investment fund for stalled projects and changes to credit guarantee scheme would strengthen the sector. The recent move by the state government to slash stamp duty has triggered the enquiries translating into the actual sales. Many investment assets has turned volatile with global trade uncertainties and the crippling economies, where in Real estate asset emerged as a safe bet option from the point of survival and existence.

The pandemic disruption has widely impacted the commercial real estate, but we see the demand revival by early 2021 or once the vaccine is invented. The commercial demand will witness increase in demand for the larger floor plates to incorporate the new social distancing norms. Also, the mega infrastructure development push will lead to decentralization paving way for more emerging economic growth corridor that shall drive the commercial demand. Real estate sector witnessed few emerging asset class like Data centre parks, logistics and warehousing sector to amplify the demand sentiment by 2021.  Thus, real estate sector will flourish in accordance to the gained economic resilience momentum to achieve aspirational goal of becoming a $5 trillion economy. The rekindled real estate sector will lead to improved employment and GDP growth by 2021.

 

Q) When can we see consolidation in the Indian real estate industry in major way and how bad/how good will it be?

The past few years have witnessed real estate being battered by the Tsunamis of economic, taxation and industry policy reforms. This resulted in to a serious liquidity crisis which left many projects limping and stalled due to choking of last mile funding. The Covid 19 pandemic was the last nail in coffin which practically brought the sector to the grind halt. The beleaguered sector was reeling under liquidity, labour and raw material scarcity technically leading to fall out of over leveraged players. The scene was about the survival of the fittest that can deleverage its debt and roll over its working capital to fuel the production. Though, government announced fiscal stimulus and measures to restart the economic engine, but it could hardly salvage positive balance sheet turning negative and ultimately a NPA.

All these detrimental factors led to consolidation trend in the real estate sector as the matter of survival. It is an on-going process where the branded and corporate real estate companies with proven track record and healthy financial status are in the stage of ‘cherry-picking’. As the growth story of Indian economy is written from the perspective of ‘mission restart’, a leading chapter which will be written will be about consolidation. The challenge so far is valuation of stalled and delayed projects; numbers as regards consolidation will rise exponentially once mutually acceptable parameters for valuation are accepted. Consolidation will be the best way out for a liquidity strapped industry and it is just a matter of time before the quantum gets enhanced.

 

Q) What are the changes required from the governments’ side (regulations) that will remove bottlenecks and give further boost to the sector?

What has happened so far is ‘good’; what is urgently needed is ‘better’ while the ideal scenario is one where ‘best’ happens. Positive steps have been undertaken by the authorities; but giving a boost to real estate will require a lot more. What is required – and urgently - are measures that remove regulatory roadblocks. 

Another focus area has to be restructuring of debt by a one-time roll-over; as also increasing liquidity in the economy – again, measures like the SWAMIH fund exist, these need to be enhanced manifold – and at the earliest. Measures which positively impact buyer sentiment are needed; ensuring disposable surplus in hands of the consumer – like slashing GST, to cite an example - these are urgently needed measures. The focus of measures by authorities has largely been on the supply side; these need to be balanced with measures that positively impact the demand side. A balanced approach is required; the urgent need is for more focus on aspects which have not been ‘in focus’, as these are required. 

Authorities need to have a holistic approach to not just ensure that the Indian economy in general and real estate in particular, rise back along the road defined by ‘mission restart’ but also ensure that we achieve the target of becoming a 5 trillion dollar economy.

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