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27
October 2017
Economy (The Total Investment & Insurance Solutions)
It
was a year when India's realty sector was shaken to its foundation. A majority
of the big, medium and small realtors across the country suffered from a severe
liquidity crunch, stalled projects, elusive investors and buyers and a
near-blanket stay on new projects -- especially in the lucrative commercial and
luxury housing segments.
How
did demonetisation result in such a severe impact on this segment?
"Essentially,
demonetisation completely drained the markets of liquidity, which is still
continuing. Banks have all the money but it is not being lent out. Nor is it
adequately compensated by alternatives like digital growth," Niranjan
Hiranandani, leading developer and Chairman of Hiranandani Constructions, told
IANS.
Hiranandani,
who is also President of the National Real Estate Development Council
(NAREDCO), a powerful body of construction companies, admits that the realty
sector took "a battering" at close quarters in the past 12 months.
The high-investment construction industry was the worst affected.
The
Goods and Services Tax (GST) and the Real Estate Regulation Act (RERA) have not
helped either. If anything, they have come in as additional dampeners. The
result is that the realty industry is passing through a phase where it seems to
be all decked up and having to go somewhere.
Hiranandani
said that, on an average, around one-third of the realty market was down
nationwide, with the impact even higher in the north and the east, even as the
cash crunch continues. The realty sector operated on the basis of unaccounted
wealth, which may have taken a hit.
Also,
the sector was largely unregulated, allowing builders to delay projects at
their whim, and investing money raised from customers in other projects or land
banks. RERA is expected to change all that, with strict penalties for violation
of construction norms or fund use.
Jaxay
Shah, President of the Confederation of Real Estate Developers Association of
India (CREDAI), is quite upbeat about the changes that have spelled doom for
the sector he is in. "Some of the most revolutionary reforms such as
demonetisation, RERA and GST have proved to be a 'naya daur' or a new era for
the realty sector," said Shah, who is Managing Director of the
Gujarat-based Savvy Infrastructure.
Shah
told IANS that the policy and legislative changes were "ushering in a new
wave of growth" by increasing transparency as well as home-buyer and
investor confidence. "These will eventually help in a sustainable growth
of the sector and the economy."
Only
agreeing partly, Hiranandani said there were some bright spots, even though
most real estate markets were down. "The situation is bright in pockets;
for instance, our Group sold the highest number of units in commercial
properties in our career," he said with a smile.
But
he added that very few groups -- like his own -- managed to scrape through
after the initial shocks which hit the economy like a 'tsunami'.
Those
representing the buyers fail to see bright spots in the sector.
Ravi
sharma, National Secretary of the Confederation of Real Estate Brokers
Associations of India (CREBAI), said while there was a more than 25 per cent
drop in new property sales, the secondary or resale market saw a collapse of
nearly 50 per cent, mainly because buyer confidence was rudely shaken.
"This
has created a change in the level of buying. For instance, the middle-class is
now opting for affordable housing, which was earlier being bought by
lower-middle classes families. The luxury housing segment has practically
crashed in Maharashtra, Tamil Nadu, Kerala, Karnataka, Telangana, Andhra
Pradesh, NCR and other major markets," Sharma told IANS, adding that the
situation was likely to become worse in the coming months.
Already,
he said, there were market rumours that cash component in deals was making a
comeback in substantial proportion as many cash-starved builders and developers
were desperate to meet their commitments in the face of new regulations.
Although
there's a substantial drop in interest rates for housing, this has attracted
only a small segment of investors (not buyers). He feels that potential buyers
with spare resources were now diverting to the stock markets for better
returns.
Sharma
said the chances of a turnaround were low. Most developers were saddled with up
to one-third in unsold stocks, blocking up huge investments. With nearly a 40
per cent drop in sales in the largest market like Mumbai, almost all the
builders were facing a severe financial crunch. Many are thinking of shifting
to low-cost housing and to construction in tier-3 cities.
He
said buyers were looking for reduced rates and some developers were trying to
dispose of their unsold inventory with discount. "But how long can this go
on?" Sharma asked rhetorically.
Hiranandani
says a silver lining is visible, but many problems need to be sorted out.
"For
instance, many foreign investors who are keen to enter are waiting for the
right time -- GDP is down and the economy is not picking up, despite measures
by the government. Once these are tackled, investor and consumer confidence
would revive."
Shah
is confident that sentiments in the sector are reviving.
"The
provisions designed to protect buyers -- whose interests are at the heart of
the reforms -- are helping to streamline processes and facilitate a transparent
ecosystem for all. We are witnessing an overall recovery of the sector,"
Shah said.
That
may be a tad over-optimistic, but every stakeholder in the sector may be
looking out for the light at the end of what seems a long, dark tunnel.The Total Investment & Insurance Solutions
