Real estate sector is going through a transition phase from being an unregulated sector to one with a regulator. Besides that there are various other factors such as implementation of GST, and RBI stance on the home loans that will impact the sector. Mint spoke to Niranjan Hiranandani, founder and managing director, Hiranandani Construction Pvt. Ltd and president, Naredco West about how developers are coping up with the regulatory changes and how sector is expected to move. Edited excerpts:
What problems are the developers facing in coping with RERA?
It’s a good law as far as transparency is concerned. As far as liquidity is concerned for the developers, it’s a big question mark. So, if the companies are already facing liquidity concerns or having cash flow negatives, then it will be further immobilization of the cash (if they have to deposit 70% of the money collected for a project in a separate account).
What is wrong with the law is that everything is not in the hands of the developer. The government machinery, which is required to give approval to the project’s plan, does not come under the regulator. That is the major lacuna of the Act. So if the authority doesn’t give me approval for some good reason, then I can’t enforce it nor can the regulator enforce it. The regulator can advise the authority to do it but the advice is not equal to legal rights. We have suggested that the regulator should have the rights to do so.
There is roundabout way to do it where Chief Minister Devendra Fadnavis has found a way to control it without actually empowering the regulator, which is that he has brought in the Right to Service Act. Wherein, you should go to the person responsible to look at the right to services, and if you have grievances against any person, you can complain.
But on one side the regulator here will take action against the developer and on the other side you go to enforce your thing. Besides that, the regulator has the power to give you extension of only 1 year. But suppose the problem continues and officials don’t give approvals, or a government authority has stopped the work, then there will be an issue and there will be courts of law.
So I wish there was a provision for the regulator to be able to give directions to the municipal corporation, environment department and the many departments concerned with the building approvals, and all that should have also come under the regulator.
How is GST going to impact the price of properties in the country?
As far as luxury properties are concerned, my view is that they are going to be impacted much higher, for the simple reason that they’re not giving the full set-off in terms of the land component (currently service tax is charge on 30% of the property value, but GST will be charged on the entire value of the property). So, if the land component was given the set off, I think there would have been less problems but I think they are working on that way. It will not impact affordable or low-cost housing much.
What is your advice to a homebuyer? Is it a good time to buy a house?
Whenever the markets are down, you must enter the market. If you are foolish enough to enter the market only when the markets are going up, good for us. Right now it’s good for the buyers, later on it will be good for the builders. So it is the customers’ choice. For us, it makes no difference when you buy. You buy today, you buy cheaper. You buy tomorrow, you buy more expensive. If the market is bullish then obviously the prices are high.
So if you buy in the market when it is going up, then you suddenly say that I missed the bus; then you go and buy in the stock market when it is already very high, then obviously you’re going to lose.
So when the markets are down, which it is today, then it’s the right time to buy. I’m not telling you something that is very intelligent, clever or smart; it’s just reality. You know that when the markets are looking sluggish, when there are problems, builders are in difficulty, when the markets are down, people have doubts in everything—then that’s the right time to buy.
You get the best deals, you get the best choice, you get the money from the bank, banks are willing to give you loans at lowest rates. So naturally if I had to buy, I would certainly buy it now.
Do you think real estate market will start reviving soon?
I think the major change that is going to take place is that earlier you would say residential housing in India is doing very well or it is doing badly. That story is gone. Now you will say: Powai, Andheri, Ghatkoper are doing very well but Navi Mumbai is doing badly. Panvel is doing very well but Karjat is doing badly. You can’t say Pune is doing well or badly, but you can say downtown Pune is doing badly but periphery of Pune where prices are reduced is doing well. Noida is doing very badly, Gurgaon is doing very badly but downtown Delhi is doing extremely well.
The story earlier was so broad, like in the case of companies, let’s say you have eight cement or steel companies, two are doing very well, one is doing ordinary, five are doing badly. If the markets are doing very well, 5 will do very well, 2 will do ordinary and 1 will do badly. If the markets go down, 5 will do badly. So it is slightly changed from yesterday, when it was easy for Mint to write an article on residential or commercial real estate and you just make a broad statement that Pune is doing very well, Hyderabad is doing badly. Those who don’t want to do homework can write like that.
Realty is different. This is the segment that is doing very well. These locations are doing well, and these are the developers that are doing well. And the other story that only the big developers are doing well and small developers are facing problem is also not correct. Many big developers are doing good, but at the same time there are many who are doing badly. Same is the case with small developers. So you can’t generalize that kind of statement to say that the whole sector is white or black. You have to explain different grades of black, different grades of grey and different grades of white, then only you would have given a correct story.
You have said that the real estate prices are low. That’s true even for the builders. So do you have any plans to enter new cities, especially Delhi and the NCR region?
We have increased our projects by five folds. We are not in the Delhi region; we are in the western and southern regions. It’s not a question of whether there are no opportunities in Delhi. We are not in Delhi and that’s all, just like we are not in Jaipur.
You have to pick and choose what you want to do and where you want to do. So for me, it’s a question of just an opportunity. You stick to certain areas, and you are happy in that area. If there is lack of opportunity here and you think the opportunities in Delhi NCR are better, we will go there. We do Dubai also, so where is the question? It’s not about not looking outside. It’s only that you are happy with what you are doing.
What are the practical problems that you think developers will face under the RERA regime?
You have to change your way of thinking and working, and that’s all. What you’re used to doing, you will have to stop getting used to that and have to think of new ways of doing it. So it will take some time for the developers, especially those who are not used to discipline. We don’t see that is a problem. But the answer is yes, you have to be cautious and careful to see that we follow the rules more strictly than before.
Recently RBI has relaxed loan to value ratio, standard asset provisioning and risk weight for individual housing loans. How will it help the homebuyers and the sector?
We are actually very happy that finally the Reserve Bank of India has recognized that the risk weightage in the case of real estate home loans has been pegged at too high an amount. They have slightly modified it and they should do much more in the future. Probably they are doing one step at a time. We had always said that there is no risk as far as home loan is concerned. The highest NPA in India of any bank is 2% or 2.2% and most of it is those elements where frauds have taken place nothing where the real loan is there.
Most of the people who take 15 or 20 years home loans repaid within 5,7 or 10 years because everybody decides to get the loan off their head and that is something which is a very common factor in India. So in India, NPA in home loans is not a problem and it is never going to happen.
The second factor which they have done is that provisioning for NPA is being brought down to 0.25 percent. So that has also come down. But it’s only prospective, which means it’s only for new home loans which are given and not for all those that are outstanding. But now if you have taken home loan for 20 years, the benefits of all the earlier people are also given by RBI. So there is no reason why the NPA provision should not be for all the loans which are outstanding. Suppose you have got loan last year for 20 years and 19 years is still remaining, so why not you also get benefit, why only those who will take loan these years will get benefit. So we believe and request that RBI should make it retrospective.
But we still think that there is scope for further reduction in risk weightage for the home loan. Which means three things will happen; one, overall banks will be able to further reduce the interest rates for home loan that is likely to happen over a period of time because many of these steps are perspective, so it will take some time for it to actually get energies.
Second part of this is, since risk weightage is there, the capital amount requirement for the financial institutions will be reduced. Because then provisioning for that by providing more capital will not be there. So that’s the advantage that we have for the RBI going into the home loans segment as far as that is concerned.
So the third part of it is the fact that RBI is not wanting to reduce interest rates as fast as it should have, but it has given further SLR benefits. Now the reason why they did this is because the banks needed to provide less a thing in order to create more liquidity. But actually that is not helpful. For this simple reason my view is that I don’t know what banks have to say because already there is sufficient liquidity in the banks and people are not borrowing; so further providing reduction in liquidity, I don’t think will be helpful. It could have been helpful if interest rates have been brought down.
See, you have already brought inflation in control. So that part of it is done.
The availability of the funds in the banks and financial institutions is sufficient. The demonetization has put lots and lots of money into the system itself.
But we are not lending. So what we have done, we have taken away from this group of people who had the money in the market and it was moving on and taken it into the banks and we are not lending it to you. So in reality you have impounded cash. What it means that you’re automatically creating a deflationary issue, that is the fear.
Affordable housing segment is witnessing lots of demand and support from government. What are Hiranandani group’s plans for the affordable housing segment?
We are definitely taking it up. We are looking at various projects especially in peripherial areas of Mumbai, Ahmadabad and Chennai. So, we are looking at all these things and very soon all these projects will be off the ground. So we do see affordable housing as a segment to be done. We’re only not sure what would be the scale at which we will be able to operate. Because we have not been into it for a long enough time or we haven’t done too much of it.
But we think that the story’s here to come and we will be in it.
The project will offer 30 sq. mtr of apartments if it’s in Mumbai city, but if it’s in periphery of Mumbai, it will be 60 sq. mtrs. Even Thane is 60, Navi Mumbai is 60, Vasai, Virar area is 60.
So everywhere else except Mumbai city or suburbs is 30, and all other areas will be 60 sq. mtrs which will be carpet area, and that I think is good enough. 30 sq. mtr is too small which I think is not a correct things to do, buts it’s an opinion.