PE & VC investments will see returning to real estate given the excellent GDP numbers in Q1 of 2021-22.

- Dr. Niranjan Hiranandani

National President, NAREDCO

Real estate sector is one of the key contributors to the GDP of the country. But it has been going through rough seas since the last few years. Can you give us an overview of the sector?

Real estate has been impacted by the Tsunamis of reforms, economic, taxation and industry related. As a result, there has been a slow-down since the past few years; with buyer sentiment being affected, it had a logical impact on sales. Just as recovery seemed imminent in end-2019, along came Covid-19.

The lockdowns - first wave in 2020 and the second in first half, 2021 - have bruised the Indian economy; Indian real estate has been equally hit. In the 'new normal', in a world where humankind co-exists with Corona, the paradigm has changed. Now, the safest and more secure place to be during any such calamity is one's own house; and 'work and study from home' means a slightly bigger home with flexi interiors to adjust to separate needs of the family across the day. In effect, this has meant new definition of homes; which real estate as an industry has adapted to - and housing sales are steadily rising.

This trend has been seen over the past few months across segments: affordable, mid-range and luxury. And it looks all set to continue the 'growth story'. Work from home/ near home and the hybrid model have resulted in 'status quo' in office and work spaces. As the vaccination numbers grow, we should see larger numbers of human resources return to offices - and demand for office space should start growing, soon. Lifestyle-related real estate segments like hospitality, travel and tourism, entertainment and retail are expected to bounce back once number of those vaccinated goes to the level where herd immunity kicks in. Data Centres and warehousing-logistics have seen growth trends through the pandemic; and are growing at a steady pace. Across the industry, the challenges remain, but things are looking better.

How have the policy decisions including GST, RERA significantly impacted the real estate sector?

As a result of the policy decisions and initiatives which have been implemented over the previous few years, Indian real estate is now better structured, more transparent. Most important, it now has a mechanism to deal with disputes which may arise between home buyer and seller. These have played a major role in assimilating global best practices in Indian real estate, and bringing in a corporate way of working across the industry.

Industry bodies such as NAREDCO have followed the policy decisions with initiatives which are in sync with the same, and these efforts have played a role in enhancing how the industry functions. Its' efforts have brought about standardization in work, enhanced quality consciousness, ensured creation of a better product with retraining and upskilling being the watchwords for better human resources that power the industry.

Government has announced various schemes to boost the real estate sector. How far have the benefits of these schemes actually translated into giving a boost to the sector?

The initiatives are all positive, and have definitely had an impact on giving a boost to affordable segment in real estate. The customer response has also been good, and we have seen huge n umbers of sanctioned and constructed homes across the past couple of years. The woman buyer as also the LIG and EWC home buyer segments have gained as a result of these schemes.

The numbers have been good so far, but it is the geographical spread of these positives where we see need for further intervention by authorities. It begins with price of land, which in urban areas, results in the schemes working only in peripheral regions, and not city centres or in commercial hubs. In metro cities, it is very difficult, if not impossible to create 'affordable' homes. If authorities can offer land which they own and have a PPP model with private sector developers, affordable housing for LIG and EWC segments, it will be a success. The benefits of these schemes are translating into positive results, but it is taking a tad longer than would have been expected.

Kindly share your views on the concerns related to funding.

Indian authorities - including the RBI - have largely been making the right decisions and in light of the challenges posed by the pandemic, have created the eco-system which would help the economy and various industries survive the impact of the pandemic. The steps taken in terms of funding, credit and aspects like working capital as also last mile funding have been pragmatic, but actual implementation at ground level leaves a lot to be desired. It is not the contention that banks are deliberately delaying or denying passing on the benefits to the industry stakeholders i.e. the banks' customers, but there has been a huge gap between what authorities announced, and what actually these have translated into at ground level. From the basic nature of a banker as being unwilling to take more risks than necessary to a scenario where far too many 'ifs' and 'buts' come into play, the Indian economy has suffered. The simple logic is: if industries are not helped during crunch situation, the stakeholders probably won't survive to see recovery. In effect, instead of bankers being cautious and 'reducing risks', it will result in the existing business entities turning into NPAs. There is intrinsic value in existing real estate projects, demand for homes will always exist and historically, NPAs in real estate over the years have been in single digits. Given these aspects, bankers need to stop being just 'risk-averse' and actually help real estate and other industries survive the challenge brought about by the pandemic.

During the peak of the pandemic, RBI had announced moratorium for the developers. Did that really help the sector players or did it result into more troubles?

This is a question which does not have answer which is in 'absolute' terms. The moratorium was very clearly an extension of time to repay existing loans, with an interest cost added on to the additional time. This worked in two ways: for those real estate developers who had not 'over leveraged', it was an option which might not be necessary; for those whose balance sheets were 'under pressure', it added to the interest burden - with obvious consequences. So, the impact of the moratorium has been different across not just geographies and business entities, this difference was based on the financial health of the concerned business entity at the point of time when the pandemic changed all paradigms; as also whether their projects could garner sales once the lockdowns were lifted.

Your take on PE/VC re-entering the market.

End-user dominating the market is definitely good for real estate as an industry; it sharpens focus on process, product and person (i.e. the consumer). It is a logical transition, given the safe and secure environment which RERA provides.

What is good for the end-user is equally good for the investor; and in effect, the retail investor has not moved away. If we look at the impact of the proposed new tenancy laws, it is positive sentiment for the 'buy to rent' segment among retail investors, and although the quantum of actual transactions might be low as of now, deals in the pipeline are 'work in progress', and in the near future, once the draft new tenancy laws are notified, we will see numbers of such retail investors surge.

Given the scenario, globally, institutional investors have taken a back seat. There is re-evaluation of various markets across geographies, and given the peculiar circumstances which the Covid-19 pandemic has brought about, institutional investors are in the 'wait and watch' mode. In this scenario too, given the fluctuations in values of 'paper-based investment', there is a slow movement on part of institutional investors back to real estate. This too, will reflect in terms of higher quantum of investment-related transactions in the near future.

PE and VC investment follows a structured format; this too will see a return, given the excellent GDP numbers in Q1 of 2021-22. Consolidation is logical in situations where a business entity has a balance sheet impacted by various sets of challenges; and this process will continue, independent of the pandemic.

Tell us about the challenges faced by the developers currently.

Real estate has been facing challenges over the decades; industry status for all segments (and not just affordable housing) is a long pending demand. Similarly, standardization of rules and laws; single window, time bound clearances and a rationalization of aspects like premia and levies are among the aspects which add to the burden. The reforms - economic, taxation and industry-based - have acted ads Tsunamis, impacting real estate big time. Covid-19 was an addition to the list, one that hit hard and on both sides: demand and supply. Most important, it affected buyer sentiment. Given these set of challenges, any industry would be floored - real estate has faced the challenges a tad better than expected.

How is technology reshaping the realty sector?

To put is simply, technology has played a positive role in reshaping the realty sector. In some aspects, it is logical progression; in others the obvious change brought about by the pandemic. This works at two levels - first, sales and marketing; and second, construction.

PropTech is the new buzz-word, and it impacts real estate at both levels - driving marketing and sales as also creating a more automated process for construction.

It helps in terms of better business processes which are monitored 24/7; even from remote locations. So, efficiency is among the best plus-points which adoption of technology is helping reshape the realty sector.

Most important, adoption of technology is helping the move towards sustainable real estate development, which also has positive impact on the environment. The positives include better quality of construction and finish; as also eco-friendly aspects which reduce negative impact on the environment.

Can you share your views on the demand supply scenario & the emergence of warehousing & data centers as the new real estate asset class?

The demand supply scenario across various segments of real estate reflect how well the segment has reacted to the pandemic. So, residential has done exceedingly well; lifestyle-related segments (hospitality, travel, F&B, organized retail) are taking the longest to return to pre-pandemic levels. New segments have taken the spotlight, like warehousing and data centres. Digital India was what saved us during the first wave; and data centres have grown not just because of the impact of the pandemic, but also because of government policies that include localization of data storage. Warehousing and logistics are also driven by the pandemic, with a huge quantum of demand created by e-commerce. The other side is policy - doing away with octroi post adoption of GST means that warehouse is not necessarily located just outside octroi limits; now efficiency of the location drives demand for warehouses - and it growing, across the nation. Cold chains have also become a reality and are in fact, growing.

Now, the efficiency aspect also works in form of higher demand for Grade-A warehousing spaces. Global Best Practices are being assimilated in the sector, and this has created an excellent investment option for global and domestic players. Trends suggest growth in these segments will get enhanced, and there is no better driver for investment other than this.

Do you think the worst is over for the real estate sector? Can you please share your outlook on the sector?

Is the worst over for real estate, this is question which does not have any exact answer. For this sentiment-driven sector, ground reality of the economic scenario and the market-place is frightening, to say the least.

It is not just the Covid-19 pandemic which has impacted real estate, some issues have been around since decades. The reforms - economic, taxation and industry - have been a Tsunami, with severe impact on the sector in the few years prior to the pandemic. It is a challenged situation which has been made tougher by the pandemic, which has brought in its own share of new challenges. The situation is very difficult; take the cost enhancement in raw material required for construction over the past year - the developer cannot pass on the hiked cost to the buyer; the revised working shows not just reduced profits but, in some cases, project viability is impacted. We now have a new 'trouble area' in form of last mile funding challenges, and along with unsold inventory, this makes for a deadly combination.

Authorities have been positive in their response to the challenges brought about by the pandemic, but more needs to be done. And, while the Regulators and Ministry do make statements with pious intent, at the ground level this does not always translate into ideal scenarios.

To sum up, the situation is challenged, the sector is facing the challenges. Some support has been forthcoming from authorities, but the situation is one where more is needed.

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