Delhi-based developer Prashant Solomon, Managing Director of Chintels India Pvt. Ltd and Treasurer of builders' apex body CREDAI NCR, details what is ailing the real estate industry and how the recent reforms can pull it out of the worst protracted slowdown. Edited excerpts.
Given the turmoil faced by the sector, does 2017 bring hopes of revival to realty?
The constructive and definitive reforms announced in the Union Budget 2017 are likely to usher in an atmosphere of growth and development in the real estate sector. But a revival from sluggish sales, caused by poor buyer mentality, will not happen overnight. Affordable housing has gained the most from this year's budget as it gets infrastructure status and may even trigger the required impetus to pull the real estate sector out of its worst slump in almost a decade. It will also make loans cheaper for developers and give them better access to institutional funding, leading to consolidation in the sector. In 2017, as the deadline to implement the Real Estate (Regulation and Development) Act or RERA draws near for the states, this landmark law will bring unprecedented transparency and accountability requirements on to developers, which in turn will win back dwindling buyer confidence.
The phasing out of the Foreign Investment Promotion Board (FIPB) will also encourage and ensure increased global capital flow into Indian real estate. Owing to changes in its regulatory framework, India will be an attractive destination to both global and Indian investors. Increased consolidation and transparency, and the launch of real estate investment trusts or REITs this year, will further encourage investors and boost the sector. All this is good news. However, we are still waiting for the nod to single window clearance, which will improve the ease of doing business.
Commercial real estate has been buoyant for the past few years. Will it impact the housing segment as well?
That has always been the case. Successful commercial hubs have led to spike in demand for housing in those areas. Currently, preferences for commercial real estate opportunities are undergoing paradigm shifts. These changes will change the demand for housing as well.
Demand for office space reflects economic activity and job catchment areas lead to the demand for residential units. Once office spaces are sold, malls and other retail outlets such as entertainment zones come up in the area. Easy access to shopping areas and entertainment opportunities, and proximity to commercial corridors boost the demand for residential real estate. Good cases in point are the development stories of NCR and Pune.
Demonetisation also impacted real estate. Do you think remonetisation will change the Indian realty market for good?
It is very early to predict how remonetisation will impact the real estate sector. But according to recent industry research, it can be safely assumed that the sector, which was already in turmoil and is now gearing up for compliance with RERA, will face new challenges in terms of rising operating costs and consumption continuing to be rationalised post demonetisation and the subsequent remonetisation drive.
What benefits do you expect from lower interest rates on home loans and the interest subvention of 3 per cent and 4 per cent for loans of up to Rs 12 lakh and Rs 9 lakh, respectively, under the Prime Minister Awas Yojana (PMAY)?
There are several initiatives by the government and the developers to entice buyers back into the residential market. After all, the residential sector makes up 85 per cent of the Indian real estate market. What is very encouraging about PMAY, the government's flagship housing programme for the poor, is that even the middle class may find in it something to cheer about. The government has announced an interest subsidy of 3-4 per cent for first-time affordable housing buyers in 2017. This a game-changing move for the sector. The required change in size for affordable housing, from built-up area of 30 sq. m. and 60 sq. m. to carpet area of 30 sq. m. and 60 sq. m., is a welcome measure, making the houses more spacious. Also, allocation to PMAY Gramin has been raised from Rs 15,000 crore in FY2016-17 to Rs 23,000 crore in FY2017-18.
On the regulatory side, how do you see things shaping up for developers? Is the buyer getting empowered?
Monitoring and governing an industry as massive as real estate is not easy as it affects the interests of many stakeholders; therefore, it needs to be addressed efficiently. RERA is one step towards this and implementing it will give the sector some much-needed transparency. Apart from many amendments to the Bill, there are a few landmark rules that will bring in overall transparency. The latest draft of the Bill also allows buyers with grievances to move consumer courts, and does not position itself as their only legal recourse. So yes, the buyers will be empowered when RERA becomes a law. Stricter rules and possibilities of legal action will deter nefarious developers and it will be another step towards cleansing the environment. RERA, with all its amendments, is a powerful tool to make the unceasingly opaque Indian real estate sector more transparent. Once it becomes a law, buyers will feel more confident to invest in real estate, and this will result in the revival, which everyone has been waiting for.
Real estate market features both end users and investors. Which of them will become more active as prices soften?
In the next few months buyers will continue to dominate the reality sector as any slowdown favours them and gives them the power to negotiate prices. That's how it will be till the interest rates bounce back and the inventory is again in place. When the various measures taken by the government to monitor and organise the real estate sector are in place and get implemented and the market starts promising better returns, investor participation will also witness a spike.
What are the revival and growth strategies for the Chintels Group?
Our strategy is simple. We focus on delivering the projects in hand-both residential and commercial. As for our first group housing project, Chintels Paradiso in Sector 109, Gurgaon, we have already given possession to some of our phase I buyers.
As far as revival goes, I have always said that the real estate industry cannot be viewed in isolation; it is linked to the macroeconomic situation of the country. When India's economy grows, so does Indian real estate. When the economy is sluggish, the real estate sector is sluggish as well. Just like the stock markets, the real estate market is also cyclical in nature and things will improve in time. Having said that, it is absolutely crucial that the government should build the infrastructure required. For instance, the Dwarka Expressway has been accorded national highway status and that will change the market dynamics here.
We should not look at lack of infrastructure as a problem for the real estate sector alone. It also means loss of business and growth opportunities in multiple sectors who are losing out because they are not getting enough opportunities to conduct their businesses.