With WFH, there will be some impact on rentals also on the financials of the REITs: Vikas-Proptiger.com
Due to the ourbreak corona there will be some evolution in terms of how people will operate from office in the long run. In the short run, due to the restrictions people are back to working from home so there will be some short term impact on the rentals and also on the financials of the REITs, says Vikas Wadhawan, Group CFO, Housing.com, Makaan.com and Proptiger.com. In an exclusive interview with RealtynInfra.com, Wadhawan says the problem of liquidity in the industry will be solved in a meaningful manner only when banks start lending to the sector. The RBI has to incentivize the commercial banks to lend to the developers at reasonable rates. Here are the excerpts of the interview:
The RBI has chosen to keep the Repo Rates unchanged. How do you see the real estate industry being affected by it?
I think what is more important than RBI keeping the key rates unchanged is how commercial banks respond with respect to rate of interest on loans, especially home loans. A couple of banks have increased the rates recently but I hope they toe the RBI line and keep the home loan rates unchanged at the moment. The rates are currently very close to the lowest levels seen in the history and such rates will help the buyers come forward and buy property in these cautiously positive times. An increase in rates by the commercial banks may deter some end users. What is also important is channelizing the flow of money to key sectors like Infra and real estate. I hope the RBI will take suitable decision from time to time to make sure enough money is channelized to these sectors and there is adequate liquidity. I also hope RBI will take some action so as to make commercial banks to provide credit to the real estate companies which is not actively happening right now. If that aspect is looked into by the central bank, I think there will be lot of momentum the industry.
How do you see the healthy pace of infra sector development making an impact on the real estate industry?
Infrastructure around a particular place plays key role in the growth of real estate sector in the place. There has been rapid development of roads and highways in the last few years which is making farflung areas more mainstream by connecting them to bigger cities. The pace of highway construction is at its highest level ever seen in the country. This is not only solving commuting problems of the people living in far way places and coming to work in nearby cities, this is also helping in setting up of new industrial clusters which in turn is supporting residential real estate as people who work in a factory sometimes choose to live close by. Construction of world class airports (for example Jewar Airport) is bringing immense value addition to the regions adjoin them and helping the real estate in those regions to grow. Rapid Infrastructure development is also supporting more than 100 allied sectors and helping create new job in those sectors which will in turn lead to more sales of residential properties. As far as the construction of projects are concerned, there is definitely some negative impact as the labourers have again started to go back to their native places and developers are struggling to keep adequate pace of construction. I think regulatory authorities should give some extension to the developers in project completion deadlines again.
The spread of coronavirus has accelerated again. How do you see it damaging the prospects of the real estate industry?
Industry will have disruption but may recover sooner than later in the current environment depending on the surge in COVID cases and its impact on health of employees.
The government has recently started vaccinating people and out of those got vaccinated, fortunately there are a small % of people getting infected and due to the effectiveness of the vaccine most of them are recovering faster than other cases due to mild infection. And with the next level vaccination drive that includes people between the age of 18-45 is expected to address a large no of population, we can be hopeful that the current corona surge will be brought under control with this vaccine drive and promotion of precautionary measures.
What has also happened that the real estate industry has invested a lot in technology in the Iast 10-12 months and now customers can virtually visit the project site and also conduct the entire property deal online with complete trust and confidence. This will again help the industry in continuing the sales momentum seen in the last 2-3 quarters.
But there is no denying that there can be some dampening of the overall sentiments in the society if the pandemic escalates further. We need to be cautiously positive in the current scenario and continue to assimilate technology on one hand and fight corona on the other hand.
If Work from home is again promulgated/adopted by corporate, how will it impact the commercial real estate segment and financials of REITs?
There are both positives and negatives of work from home system. Due to the spread of corona virus, there will be some evolution in terms of how people will operate from office in the long run. In the short run, due to the restrictions people are back to working from home so there will be some short term impact on the rentals and also on the financials of the REITs. Interestingly, even in 2020 when the companies asked their employees to work from home, the employees started to choose bigger homes so that is of the positive sides of the whole aspect. So I think the overall real estate industry will not be losing out majorly with work from home regime.
What is the condition of the liquidity in the market (for realty players) and what seems to be the road ahead for the real estate companies for getting project finances?
What has happened over the last few years is that banks have started to be extra cautious in lending money to the developers. The NBFC crisis further made the matters worse for the real estate companies and there is liquidity issue in the sector as of now.
Although the government has been trying to set up a support system to provide finances to the real estate industry. It has launched Special Window for Completion of Construction of Affordable and Mid-Income Housing Projects’ (SWAMIH) fund which has already started to disburse money for projects. The fund has a decent enough pipeline of projects to which it proposes to finance.
However, the problem of liquidity in the industry will be solved in a meaningful manner only when banks start lending to the sector. The RBI has to incentivize the commercial banks to lend to the developers at reasonable rates.
How has the SWAMIH Fund performed so far? Do you think the fund is sufficient to fund all the stuck projects which have somewhat sound financials?
The government listened to the home buyers in the country and asset up the Special Window for Completion of Construction of Affordable and Mid-Income Housing Projects’ (SWAMIH) fund or the stress fund. The message that has gone out with the setting up of the fund is that the government is concerned about home buyers issues and is serious about the providing finances to the real estate projects. This was very important. The size or the corpus if the fund could be been bigger and the fund could have broadened its scope to include more projects. But those are matters of detail. I think it is quite comforting that the government is taking cognizance of the ground realities and acting upon them. The decisions of the government to let industry professionals run the SWAMIH Fund is also commendable otherwise decision could have been stuck in red tape quagmire. There is lot of opportunity for the delayed projects in this fund. Interestingly, I have seen a number of private funds also coming forward to take up stuck projects which is definitely a welcome development in the industry.
How do you see infusion of technology in the real estate sector playing a part in bringing down the cost for the developers and home prices for the end consumers?
Technology plays a critical role in bringing down costs in any industry, apart from achieving other benefits like saving time, better quality, etc. Real estate is no different. Real estate is a very competitive industry and the consumers always look for the most value-for-money deal. In such a scenario most developers are trying to outdo each other in adoption of technology for bringing down their own cost so that they can offer best pricing to their prospective clients. The developers have invested in pre-fab technology, artificial intelligence, big data etc which have not only given them better control in meeting delivery timelines but also reduced the costs as compared to the conventional methods which is resulting in consumers getting properties cheaper. The pace of digitization has increased tremendously, especially by new-age companies and startups, bringing in more time and cost efficiencies. In the times to come, there will be increased use of drones, virtual reality, big data and AI in the real estate industry.