Property Sales Levels This Festive Season Will Not Touch 2014, 2015 Levels: Ramesh Nair

The real estate sector continues to face challenges and has been hit further by the ongoing economic slowdown in the economy. In an exclusive interview to RealtynInfra.com, Ramesh Nair, Chairman and Country Head- India, JLL, shares his perspectives on the some of the most pressing issues and throws light of the some of the evolving trends in the industry. Here are the excerpts:       

Ques: How is housing sales expected to be in the second half of the current year? What is the expectation about sales during the festive season?

Traditionally, festive season has been better in comparison to other quarters. However, with high levels of delayed projects, the sentiment has been subdued. 

This said, we still expect sales to be moderately good. But we will not see the levels we witnessed in 2014 and 2015, when there was spike in sales during the festive season. As prospective homebuyers prefer buying ready-to-move-in apartments, that too in the affordable properties, market has aligned itself to the trend. 

As a result, developers have started launching more of affordable housing and mid-income housing units. While prices will remain range bound, we will see more of such projects in festive season and in coming quarters.

Ques: What is the current situation about liquidity in the real estate sector, especially now when subvention schemes have been barred by National Housing Bank?

Liquidity has been a concern for the sector as scheduled public sector banks have been cautious with lending to the real estate sector. It is important to note that over the years the dependence of developers on NBFCs/HFCs had increased as banks reduced their exposure to developers. 

On the back of continuous shrinkage of bank finance to developers, NBFC funding got a priority because of the lower cost of funds compared to institutional investors. Flexibility in the structuring of payments made NBFCs and HFCs a preferred choice for developers. This is corroborated by the fact that outstanding credit by NBFCs/HFCs to real estate developers increased by more than 3.5 times to about Rs 233,000 crore till financial year 2017-18 from Rs 64,000 crore in financial year 2011-12.

Default by leading NBFC - Infrastructure Leasing & Financial Services (IL&FS) -- in scheduled payments led to a liquidity squeeze in the real estate sector since September 2018. Our interactions with the industry indicate that NBFC and HFC funding was normal during April-September 2018. The period of October-March is considered to be a peak in lending activities. But, because of the NBFC crisis, the lending slowed down substantially during the above period. In FY 2018-19, net disbursals by NBFCs/HFCs to real estate developers declined by almost half from-Rs 52,000 crore in financial year 2017-18 to an estimated Rs 27,000 crore in financial year 2018-19.

The share of the large NBFCs/HFCs accounted for an estimated 50-60 percent of lending to the real estate developers. The lending by these players came to standstill after the default crisis. Rather they focused more on recovering their dues fearing default from developers. Most of them re-organized their asset portfolio leading to lower real estate sector lending. The default crisis also led to a sea change in lending behaviour with stringent credit guidelines in place.

While the government has raised objections on subvention schemes, developers with good track record are able to sell their units smoothly. We have a plenty of such examples. Discerning buyers do their due diligence before investing into a project. As a result, sales will be based on other key factors such as location, track record of the builder and delivery and not just some scheme to push sales.

Ques: There is talk of overall economic slowdown in the economy. How do you see it impacting the real estate sector which has already been struggling with its own slowdown for the past few years?

As mentioned earlier, sentiment has remained subdued. Having said that, economic slowdown does impact the sales cycle. However, government’s recent incentives and sops announced on promoting the sale of affordable housing, and support the real estate sector, have proved that sector remains strong and has the potential to give the desired returns to all investors and stakeholders.

But the market is addressing the current challenges of delayed projects, presence of unsold inventory and liquidity crunch in its own way. Consolidation in the sector has thus become a common trend, especially in big metros. Market and developers, in particular, have aligned themselves to focus more on the delivery of affordable and mid-income housing units, where there is more demand.

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