ALL SHIMMERING GLASS and steel, One BKC became the brightest star in India’s real estate sector when private equity investor Blackstone snapped up the office complex for Rs2,500 crore a few weeks ago. It was one of the biggest real estate deals in the country. Home to the likes of Amazon, Facebook and Bank of America, One BKC is a fully-rented out office space spread across seven lakh square feet in Bandra-Kurla Complex (BKC) in Mumbai.
BKC, the corporate hub of India’s commercial capital, recently saw some other big-ticket property deals, too, such as K Raheja Corp buying the Citi Centre office complex and the Japanese conglomerate Sumitomo offering a reported 02,000 crore plus figure for a three-acre plot.
It is, however, an entirely different story in the residential property market. There are some 12.8 lakh houses lying unsold in the top 30 Indian cities, a figure that has risen by 7 per cent in a year. Worse, there are some five lakh homebuyers left in the lurch because of stalled projects across the country. And many small and medium real estate companies have gone bust in the past few years.
In July, the Supreme Court ordered the government-run NBCC to step in and complete 42,000 flats that were left incomplete by Amrapali Developers in Greater Noida. The apex court also declared that homebuyers could be considered as operational creditors in bankruptcy proceedings, and thus are entitled for a share of the money coming in from bankruptcy proceedings.
How much will it help? Amrapali’s stalled projects are in Greater Noida, once farmland that was snapped up by authorities and sold off to sundry developers who announced project after project during the boom in the 2000s and early 2010s. Today, the result of this unbridled gold rush has come home to roost. Of the 1.74 lakh flats and villas left incomplete across the top seven cities in the country, 1.18 lakh are in the national capital region, primarily the Greater Noida belt.
A fortnight ago, the National Real Estate Development Council (NAREDCO) downgraded the outlook for the rest of the year to ‘pessimistic’, indicating no improvement in on-ground activities in the sector. New project launches almost halved, according to a report by PropTiger. “Trust deficit is something which can be countered only by a positive response, in form of measures that enable completion of the stalled/delayed projects as also ensure that those who have booked homes in such projects get their homes,”said NAREDCO president Niranjan Hiranandani. “The solution is simple: NAREDCO has suggested that a stressed assets fund be set up to enable completion of stalled and delayed projects.”
Finance Minister Nirmala Sitharaman has already announced the infusion of Rs30,000 crore to housing finance companies via the National Housing Bank, and there are more measures on the anvil. She has had three rounds of meetings with real estate players. A committee was formed last month, headed by housing and urban development minister Hardeep Singh Puri, to study on forming a ‘stress fund’, which could fund incomplete housing projects.
The origin of the stress lies in the industry’s own excesses during the boom times. “Real estate earlier was more or less a wild west marketplace marred by unscrupulous and largely unregulated activities,” said Anuj Puri, chairman of real estate consultancy Anarock. Housing, particularly in the metros, were priced out of the reach of the common man. “Because of excessive interest and investment, prices had gone up unreasonably,” said Jayashree Kurup, advisory head at the real estate portal Magicbricks. Though inflated property prices started plateauing, other factors hastened the decline. As banks started feeling the pressure of non-performing assets and as non-banking financial companies faced a fund crunch, real estate developers had to stall many projects.
The slackening demand got exacerbated by demonetisation in 2016. “Reforms like RERA (Real Estate Regulatory Authority), GST and the Benami Properties Act, though much needed, caused a major upheaval in the Indian real estate sector,” said Puri.
However, linking the current woes of the real estate segment to the overall economic slowdown and lack of demand is like missing the forest for the trees. The segment has its own worries. “To bring back growth in the sector, we expect the government to impart industry status to the sector, which would enable developers to cut capital costs and pass on the benefits to consumers,” said Surendra Hiranandani, chairman and managing director of House of Hiranandani. “The need of the hour is to lower interest rates significantly, which will help resolve the existing liquidity crisis and will eventually persuade buyers to decide on purchasing homes.” Agreed Chintan Patel, partner and leader (building, construction and real estate), KPMG India. “The cost of debt is high,” he said.
While a revival this upcoming festive season, even if the government announces more stimulus packages, seems unlikely, a few factors make many industry players optimistic. Stabilisation of prices, departure of speculative investors and dubious developers, and new laws that have brought in a semblance of order would help in the long run.
The sector has smelt an opportunity to clamber back from the precipice with the government’s ‘housing for all by 2022’ initiative and the ambitious rollout of affordable housing schemes like the Pradhan Mantri Awas Yojana. “The cap of Rs45 lakh (for a house to qualify for incentives under the ‘affordable housing’ scheme) is not adequate and not many buyers are benefitting out of it,” said Surendra Hiranandani. The industry has asked for this to be raised to Rs1 crore.
While the north Indian market is down, it is more or less stable in Hyderabad and Chennai. “Southern markets were end-user driven, while NCR had prices skyrocketing on the back of reckless speculation in previous years,” said Puri. “Being far more resilient, southern cities were quick to recover from the overall slowdown.”