When the government had reduced the Goods and Services Tax (GST) for the affordable housing segment, many thought it would revive the sector. However, the response has been lukewarm.
Developers claim that the sector, which is reeling under slowdown for the last five years hit by several reforms such as RERA, demonetisation, GST and now liquidity crisis, needs special attention as it remains one of the top employment generators.
Developers also feel that one or two freebies cannot fix this sector. It requires serious analysis and a holistic vision, keeping all stakeholders in mind.
“The housing sector is a key indicator of the country’s economic growth. Not only it is a form of easy investment but it also aids employment in the country. There is an urgent need for the government to support developers,” Ashok Gupta, chairman and managing director, Ajnara India, said. The worst hit is the residential sector.
Rate of residential property, barring few cities, has remained stagnant. Big players with deep pockets have managed to stay afloat but the ongoing liquidity crisis is making survival difficult even for large players. “The cost of construction is now three times higher,” claimed Niranjan Hiranandani, chairman of Naredco.
With a dip in sales of under construction properties and drying up of traditional sources of money from nonbanking financial institutions, banks and mutual funds, developers claimed that financial risk has increased in the residential segment. “Buyers are now looking for finished projects with Occupation Certificates (OC) which don’t attract GST. Debt from banks has stopped because of RBI’s guidelines on risk of lending to this sector.
NBFCs, which were pumping in money till three years ago, have also now dried up after the IL&FS debacle,” explained Anuj Puri, chief executive officer, Anarock Consultants.
On a positive note, however, private equity investment has seen a healthy surge in the last few months, but mostly they have been biased towards commercial realty. According to consulting firm Colliers International, investments worth USD 3.9 billion were pumped into the Indian real estate sector in the first six months of this year, out of which office spaces accounted for 42 per cent of the total investment while retail contributed 31 per cent. Naturally many players like Godrej, Tata Realty are shifting their focus towards commercial real estate, which has seen some momentum in last few months. Last week, Tata Realty and Infrastructure Ltd (TRIL), owned by Tata Sons Ltd, said it would focus on its commercial real estate portfolio as part of its strategy to create a balanced project mix between residential and commercial projects.
TRIL, with around five million sq ft of commercial space under operation and two million sqft under construction is planning to add one million sq ft by the end of this year and has signed term sheets that will add 12 million sqft in 2019-20.
On the other hand, DLF Ltd is still languishing with completed but unsold housing inventory, which experts claim could take another three-four years to get off its books considering the current market scene. In this case, it is its rental assets which are helping it to sail through the pain.