Deepak Parekh expects property prices to fall 20% post COVID-19 crisis, offers prescription for realty sector

Updated : April 14, 2020 02:36 PM IST

Deepak Parekh, Chairman of Housing Development Finance Corporation (HDFC), on Tuesday said that he expects real estate prices to fall by 20 percent in the country post the COVID-19 crisis.

According to Parekh, the markets have not bottomed out yet.

The veteran banker has listed a set of suggestions that state governments, regulator Reserve Bank of India and the developer community could follow to help the real estate sector survive the financial and economic crisis.

Among the suggestions, Parekh has advised that the states and developers must incentivise migrant workers to encourage them to return to work or construction sites.

Parekh has urged the developers to "compromise". He has said that the focus should be on completion of projects, even at the cost of delaying new launches.

Here's a list of his suggestions:

For state governments:

1. Incentivise migrant workers to return to work and back to construction sites to resume work as soon as possible. Developers must also be prepared to do whatever it takes to incentivise their workers, lure them back to work in these difficult times.

2. Consider a waiver of stamp duty and registration charge on housing, at least for a limited time especially during the festive season of September-October. While he said the waiver cannot be allowed to continue for too long as it hurts the states' revenues, it must be allowed for a short time to support the real estate sector in these times of crisis.

3. States need to review ready reckoner rates more frequently than what is currently done.

4. Allow a more staggered payment of charges like TDR, ULC, etc., as people are not in a financial position to make upfront payments.

For Reserve Bank of India:

1. Need early recognition from the regulator that monetary policy transmission is not happening effectively. Yields have not fallen despite large rate cuts from RBI. This needs to remedied.

2. Banks have, and continue to remain risk averse because of their past experience with large non-performing assets piling up. The regulator must act to change that attitude of banks and give them comfort.

3. Recommends that the Reserve Bank directly purchase corporate bonds, commercial papers in the market to help with liquidity. Merely lending against government securities is not enough. Even the US Federal Reserve has started buying junk bonds; while India may not necessarily resort to that, it does need to step up efforts to improve liquidity.

4. RBI needs to act quickly as now is not the time for further financial accidents. Therefore, a one-time restructuring for the real estate sector is a more feasible solution that must be considered.

5. Allow extended NPA recognition cycle of 180 days instead of 90 days, at least for a limited period of time.

For developer community:

1. Developers must leverage and deepen their long-term relationship with bankers to guide them through these tough times.

2. Assess the long-term strategy and capability, before availing of any moratoriums.

3. Stay in touch with suppliers and remain watchful of commodity prices.

4. Be careful of the perils of leverage. Don't borrow short term for long term commitments.

5. Take any available equity at whatever price because it will help the company in the long term.

6. Focus on completion of projects, even at the cost of pushing new launches.

7. This is the time for partnerships and for working with stronger companies. Example: partnering with good corporates and contractors with revenue sharing agreements.

8. Raise the bar when it comes to corporate governance; it will help get community support.

9. Take home less money/salary this year, and instead keep that money in the company instead.

Deepak Parekh expects property prices to fall 20% post COVID-19 crisis, offers prescription for realty sector

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