Poor infrastructure, oversupply subdued market sentiment
Pankaj Bajaj, MD of Eldeco Infrastructure and Properties Ltd, in an inter view with Times Property said that faster approvals through online system, reduction of interest rates on home loans by 100 to 150 basis points (1-1.5%), from the current level of 9.75 %, etc, are sine qua non in meeting the target of “Housing for All“ by 2022 set by the NDA government.Eldeco is a leading real estate company that has successfully launched and delivered a number of real estate projects in the NCR region and Tier 2 and 3 cities like Lucknow, Kanpur, Jhansi, Noida, Greater Noida, Sonipat, Panipat, Neemrana, and Ludhiana.
Excerpts from the interview:
WHAT IS THE SENTIMENT IN THE REAL ESTATE MARKET?
The market depends upon demand-supply theory. If we look at the overall scenario, the sentiment is low.
As for the realty sector, the market has different perspectives. From the perspective of builders and developers, the sentiment is not good; but, from the perspective of consumers, it is a good time to buy.
Poor infrastructure and over supply have subdued sentiment in the market. Also, the adverse effects of a sluggish economy have halted new launches for quite some time and this trend is likely to continue for another year. The resultant supply constraint will in turn hit the next cycle, which is going to last 5-6 years.
We are at the bottom of the market cycle. So it is best time for buyers to enter.
WHAT SHOULD THE CENTRE DO TO KICK-START GROWTH?
Government must extend infrastructure support at the ground level. Despite developers paying huge amounts as EDC (Exter nal Development Charge), physical infrastructure is not developed on time by local development agencies. This is one major reason why developers are not able to deliver projects on time.
Faster approvals through online system, reduction of interest rates on home loans by 100 to 150 basis points (1-1.5%), from the current level of 9.75% are real and pressing concerns for the sector.
It has become a norm for local authorities to create infrastructure after projects are built whereas, logically, physical infrastructure must be in place well ahead of the completion of projects.
Various clearances from change of land use and approval of plans to the issue of completion certificate, consume a lot of time. Time-bound clearances and faster approvals will bring down prices of housing units by as much as 20%.
DO YOU AGREE WITH THE RBI GOVERNOR'S THAT DEMAND WILL PICK UP IF DEVELOPERS LOWER PRICES AND CLEAR THEIR UNSOLD STOCK?
It's logical though not realistic. Price cut is not a long-term solution as developers are already battling high interest rates, high input costs, and enhanced taxes.
When the RBI cuts interest rates, for the cost of borrowing to decline, it usually takes longer for it to trickle down to customers in a developing country like India.
At present, there is not much appreciation in housing prices. It will be better if the government and the apex banker create an enabling environment for investors and end users to come back to the market.
URBAN AFFORDABLE HOUSING HAS LONG BEEN NEGLECTED IN INDIA; WHAT ARE THE REASONS?
High land prices, delay in approvals, and low margins in the segment are some major reasons why developers have traditionally shied away building affordable housing.
Incentivizing the sector by making land available at cheap rates, reducing raw material prices, providing additional Floor Space Index (FSI) for such developments, etc, are bound to provide impetus to the development of low-cost housing units.
Further, by providing tax exemp tions and reducing developmental costs, the government would be able to lure private developers. Ideally, the public sector should look at aggregating land for projects, while the private sector should focus on construction, financing the project, etc. Private sector participation, particularly in a public private partnership (PPP) model, may prompt timely approvals.
IN LIGHT OF THESE BOTTLENECKS, DO YOU THINK THE NDA GOVERNMENT CAN MEET ITS TARGET OF BUILDING 6 CRORE HOUSES BY 2022? HOUSES BY 2022?
This target does not appear to be practicable unless a complete road map is laid out at the earliest. The real estate industry can offer innovative housing models to address the challenges of specific, target segments. The government must promote private sector involvement, which would play a significant role in bridging the current deficit in low-cost housing