Realty needs government handholding
24 September 2020
The real estate sector is perhaps the largest industry in the country in terms of scale and revenue generation and the top employer providing employment to millions directly and to several millions indirectly
The coronavirus pandemic has hit an already beleaguered real estate business the hardest as it dried off whatever remained of the slack demand. A stage has now come that without a major revival in demand, the sector would continue to suffer.
While the real estate industry has been offering price discounts and shifting focus to Tier-II and Tier-III cities in search of buyers, there is no certainty that this will help the industry expand market in a sustainable way.
As things stand, demand for real estate, especially in the housing and office space segment, is closely associated with infrastructure growth – the more the convenience the greater the demand. And, this applies to pricing and investor returns as well.
Real estate market in the country has been very much dependent on expatriate Indians, mostly non-residents in the Gulf Arab countries. But that hope is fading with many of them losing jobs and returning home in the wake of the Covid-19 pandemic.
Yet, according to reports, real estate developers have seen an increase in the number of enquiries from NRIs even as residents continued to keep off the realty sector. The spike in demand could, however, be temporary as this is confined to NRIs who have been more cautious in spending or have found a sudden surplus that they can keep investing.
There may be some others who want to take advantage of falling asset prices and low interest rates that have come as consumer benefits of the coronavirus pandemic.
As housing inventories decrease, prices will start rising, giving buyers an opportunity to sell their properties at a higher rate with less competition.
The real estate market has been struggling to overcome multiple setbacks of demonetisation, stricter housing laws and a credit crunch in the last three years, leading to stalled projects that left investors and developers high and dry.
The pandemic that triggered job losses and salary cuts has come as yet another blow. Housing sales in India’s top eight cities have fallen to the lowest in a decade in the first half of 2020, according to Knight Frank India.
Almost all major real estate companies in the country have been offering easy payment options to attract buyers. Real estate developer Hiranandani group has been wooing buyers online with offers like low initial payment and loans at below 7 per cent interest rate.
While Hiranandani has been catering to NRI buyers, the group is yet to see many of the current enquiries translate into actual transactions, which point to market uncertainty.
Yet, the group, like many other real estate developers, are banking on NRIs to offload the rising inventories.
NRI deals are mainly for larger homes in integrated townships, which offer lifestyle features similar to those in the countries they lived and are confined to the diaspora returning from countries like the US, the UK and the better-off from the Gulf Arab countries.
The one advantage of the nation-wide lockdown prompted by the spread of the coronavirus pandemic has been an increase in online business deals. Developers benefited from a transition to online enquiries - the lockdown halted marketing activities and site visits.
Godrej Properties Ltd is perhaps the sole gainer amidst the pandemic, with total bookings valued at Rs1,531 crore and overall booking volume of 2.51 million square feet in the three months ended June 2020. That compares with the total booking value of Rs897 crore and total booking volume of 1.35 million sq ft in the year-ago period.
Stress Fund a Big Relief
While the stress fund announced by the government has helped clear Rs10,000 crore investment for 101 realty projects, there were instances where developers had to refund investor money and realtors selling plots to avert default on loan repayment.
The government-sponsored last-mile fund for stressed projects, managed by SBICAP Ventures cleared investments worth over Rs10,000 crore for 101 proposals that will benefit around 71,000 homebuyers across various cities.
The Special Window for Completion of Construction of Affordable and Mid-Income Housing Projects (SWAMIH I) cleared these applications from realty developers for their stressed projects in the last 7 months including the lockdown period.
The fund is now sanctioning loans at 12 per cent internal rate of return (IRR) as against earlier return expectations of 15 per cent. A total of 22 projects with over 20,000 affected homebuyers have already started receiving funds.
Finance minister Nirmala Sitharaman announced the SWAMIH Investment Fund last month. It has so far approved Rs8,767 crore for 81 stressed residential projects.
These projects are spread across major markets, including National Capital Region (NCR), Mumbai Metropolitan Region (MMR), Bengaluru, Chennai, Pune and also tier-II locations including Nagpur, Jaipur, Nashik, Vizag, Chandigarh, Karnal, Panipat, Lucknow, Surat, Dehradun, and Kota among others.
Builders in Noida, meanwhile, benefited from an extension of the period for completion of pending projects till December 2021.
According to government estimates, there are 4.58 lakh stalled housing units in 1,509 residential projects stuck across the country. The Rs12,500-crore fund, with green-shoe option of additional Rs12,500 crore, aims to provide financing to enable completion of stalled housing projects and ensure delivery of apartments to troubled homebuyers.
Consolidation Amidst Pandemic
Builders like Embassy Group and Indospace, have been looking at consolidation of business.
Embassy Group's subsidiaries have opted for a merger with Indiabulls Real Estate, creating a listed entity 44.9 per cent owned by Embassy Group, 26.2 per cent by the existing public and institutional shareholders, 9.8 per cent by existing IBREL promoter group and about 19.1 per cent by BREP and other Embassy institutional investors.
Apart from this, Real Estate Regulatory Authorities (RERA) across several states have extended the deadlines for project completions.
Besides, the National Company Law Tribunal (NCLT) has set aside insolvency proceedings against Ansal Properties and Infrastructure.
All said and done, the coronavirus pandemic has also changed home buyers’ tastes and preferences. It is no more mere demand and supply – it is demand for the right property.
Buyers now, more than ever, realise the need for a safe place to call home. Of course, the old preferences of a school, shopping, social relations and life, in general, still stand.
But, to be real home, it needs more than that - the home space is now also becoming the office, classroom, restaurant, and place of entertainment.