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Real Estate

Real estate sector needs stressed asset fund to deal with NPAs, says Prestige Group

Updated : July 01, 2019 22:06:08 IST

Reviving India's residential sector is a priority for the  government and the upcoming Union Budget will attempt to do something about it. More jobs and higher gross domestic product (GDP) are tied to the revival of India's housing sector.

Manisha Natarajan spoke with Niranjan Hiranandani co-founder and managing director of Hiranandani Group, Venkat Narayana, CEO of Prestige Group, Anshul Jain country head and MD - India at Cushman & Wakefield and Ritesh Vohra partner and head, real estate at Investcorp India Asset Managers to discuss what the budget can do to boost demand from home buyers and if it will do anything to ease the liquidity crunch facing the sector?

Hiranandani said: "There are two wishes, one is the wish of the government through the prime minister's statement — housing for all by 2022, I think that target is going to be met. That was the announcement by the ministry and they have said that the Pradhan Mantri Awas Yojana (PMAY) scheme is imminently successful, they have already achieved 70 percent plus of the target in terms of doing it. Of course there are some cities like Mumbai which have really not taken off in the central areas, I think that is a real challenge. Barring that I think countrywide they are able to meet the target.

"Second point is really a concern of the industry is the fact that credit is such a big problem that you cannot imagine. So, I think the liquidity crisis is something which is really abhorrent and scary and really worrying everybody and especially after IL&FS went through its crisis the matter has been compounded. So on one side, there seems to be a positive view from the government in terms of affordable housing to the extent they have done in, while here the industry looks like quite a crisis. So two contradictory situations but both are understandable."

Narayana said: "Giving real estate a industry status is something which real estate has been asking for quite some time, so that will definitely help. In addition, the government should come up with some special measures to ease the liquidity issue. Also there are lot of stressed assets in the country across the geographies and regions, maybe we should look at forming a stressed asset fund or some kind of a platform wherein we can deal with those assets. Even if you look at RERA [Real Estate (Regulation and Development) Act, 2016], every developer is registering their projects and more information is coming to light as to how many projects have not been delivered on time, how many projects are delayed, how many customers are stuck and all of that but this is only the information that we are getting, there is no mechanism for resolution of these issues. RERA has become problem identifying body, not a problem solving body."

Jain said: "The industry status demand has been there for a long time. All it does is it opens up various modes of financing at a much affordable or a better rate. If you look at the NBFC [non-banking financial company] crisis right now which was the large funder into the real estate and with the NBFC door kind of closing on real estate the demand for industry status becomes amplified even more. The timing was a little off for the whole NBFC crisis because the consumer confidence was just about returning in the residential real estate sector where most of the leading and established developers were reporting better sales in the first quarter. So the timing for the NBFC crisis was unfortunate and therefore if the government has to spur the demand in the real estate sector and therefore the related economy and the employment that it creates, then now is the right time to really look at providing the industry status."

Vohra said: "The ultimate solution that is going to come here is actually going to come from the customers. We need the customers to be a motivated lot. We need customers to start coming back and buying houses all over again. If you look at our numbers, our annual sales today in the top 7-8 cities are negative 40 percent compared to where we were in 2010-2011.

"What really needs to get the industry going is actual operating cash flows. Liquidity is a big issue and that needs to be addressed, stressed projects is a big issue which needs to be addressed but ultimately what we really need is actual operating cash flows coming from actual real sales and to that extent I think the budget has an opportunity, it is a real opportunity to induce or provide a stimulus to the buyers, to provide a stimulus to the demand side by increasing the deduction limit for interest on housing loans.

"Today the deduction limit is at Rs 2 lakh, my view is it should actually go up to about Rs 5 lakh in one shot. What that does is for people who are buying houses up to Rs 70-90 lakh, it actually gives them a big breather in terms of the total interest cost that they are incurring. So that will bring a lot of customers back into the market and that in turn gets your operating cash flows moving which in turn actually gets the liquidity cycle also moving at some level for real estate."
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