In realty, the worst is over

In realty, the worst is over
The Hindu Business line, July 5, 2009, Page 15

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Improvement in the secondary housing market is not as obvious as is in the primary market. - MR KUMAR GERA, PRESIDENT, CREDAI.
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Moumita Bakshi Chatterjee

The near lull in the housing sector just months ago has been replaced by a slew of project launches touting affordable price tags, and a fund-raising spree by leading realtors. Developers are keeping their fingers crossed that sustained improvement in consumer sentiments – coupled with Government’s thrust on urban housing, a bigger Jawaharlal Nehru National Urban Renewal Mission (JNNURM) outlay, and the Union Budget for 2009-10 – would speed up the recovery in the sector and drive up demand for property.

Business Line spoke to Mr Kumar Gera, President, Confederation of Real Estate Developers Association of India, and Chairman & Managing Director, Gera Developments, on issues relating to recovery, challenges, and expectation from the Government.

Real estate companies are claiming that housing sales have picked since March-April. In your view, is the worst behind us and have the prices bottomed out?

Yes, I do believe that the worst is behind us and sales will now be inching forward in terms of velocity and price. My reason for saying this is largely due to the change in sentiment that is being witnessed, which seems to be related to the growth of the economy being at a healthy 6-plus per cent.

But is the demand restricted to specific segments of the property market, primarily the affordable housing space? In your opinion, are real estate players catering adequately to this segment ?

Currently revival is seen mainly in the residential sector, albeit at lower price points, and in the less-than-1,500 sq.ft segment. Real estate development often sees a herd mentality among developers.

The current mantra seems to be affordable housing and it is this segment where maximum sales are happening while commercial sales and residential units with price tags in crores of rupees are sluggish, at the moment.

Meanwhile, the improvement in the secondary housing market is not as obvious as is the case in the primary market – this is because the drop in prices in the secondary market has generally been less than the drop witnessed in the primary housing market.

Has the cash crunch, for players, eased over the last quarter. Do you expect the cash flows to improve in the coming months?

The cash crunch has eased to an extent as a result of offloading inventory at low prices, disposal of NPAs, reduction of land banks, arranging finance through private investors, holding back or delaying new launches, and so on. It is expected that the overall liquidity in the markets will see improvement, going forward. But there still are challenges.

These relate to depressed prices and low sales velocity, which though better than March-April levels, are far lower than those witnessed in the year-ago period.

For instance, if the prices dropped by, say, 35 per cent in the period October to December 2008, and increased today by a mere 10 per cent, the actual rise is still a fraction of the previous levels.

The impact is bigger when you see the fall and the relative rise in the context of the slow sales velocity. We still have a long way to go to recover the earlier growth rates.

The Parliamentary Standing Committee on urban housing, in its latest report, has taken note of the benefits of having Special Residential Zones (SRZs) and has asked the Centre to consider such programmes. Do you think the concept of SRZs is even more critical, in the wake of the current affordability push?

Yes, setting up SRZs could be the answer to issues of affordability and kick-starting the economy. The Government can stipulate the minimum size of the land – say, 50 acres and above – and have these SRZs bonded by compound walls just like an SEZ.

In this model, the Government should not get into land acquisitions, and the same can be done directly by the private sector.

SRZs would be areas that are excluded from domestic taxes and levies, with specific rules to promote large-scale affordable housing. For instance, each SRZ could have 3,000-4,000 affordable dwelling units.

Government support to development of these zones through concessions means that these fiscal benefits will bring down the cost of the units that are located within these SRZs. I think creation of SRZs is the need of the hour, more so in the current context.

Could you outline specifically the three most important things that industry wants from the Government?

We would like to see the three categories — affordable housing-projects with over 100 units, below 90 sq.mt of space each; integrated townships -any development that is over 20 acres; and SEZs — being accorded infrastructure status.

Secondly, we are hoping that the Government would raise deduction permissible on interest repayment for housing loan from Rs 1.50 lakh to Rs 3 lakh.

Thirdly, exemptions should be provided for affordable housing projects below 90 sq.mt on the lines of the erstwhile 80Ib (10) scheme.