RetailLending.com Founder & Director Sukanya Kumar in an interaction with Nirmal Anshu Ranjan, of ENN talks about the future prospects of the realty industry and its expectations from the new government at the Centre
Now that the economy seems set for a rebound, do you think it’s time for the real estate sector to smile?
Given the overall scenario, the outlook is very positive. Be it because of an all-round optimism on account of Narendra Modi factor, or a general spike in the housing demand, my investor- clients are quite bullish about the future prospects of the real estate sector. They are about to start investing in properties soon. Having lied low for some time, I must say, June onwards it’s going to be party time again in the sector.
If things start looking up now, can we expect the industry to hit bloom by the year-end?
That would be a rather hasty conclusion it may or may not by then. Going by the state of things now, I would say, one should see strong signs of revival in the sector by the end of the current financial year. Plus, by then the new government will have spent some time in the office, and its policies will start showing the results.
Would you attribute this change in outlook to internal factors, or the improved health state of global economy?
We have observed in the past also that external factors do have a bearing onhe is simply unwilling to touch his liquid cash, or doesn’t want to liquidate his other assets due to the market sentiments. The rupee-dollar ratio or global economic changes might affect an NRI, not an average Indian investor. Indian investors had been basically waiting for the elections to happen, monetary policy to stabilise and lending rates to soften.
Do you foresee changes in lending rates anytime soon, which could bolster activities in the sector?
I have been anticipating softening of interest rates for some time now. Earlier, the fixed-rate bank loans were costlier than the floating ones. It was in antici- pation of the fact that the RBI would stiffen the rates in future. However, of late, in the last one year or so, the trend has reversed the fixed rate loans are cheaper now, which is a pointer to softening of lending rates in the days ahead. Accordingly, the consumers are also opting for fixed-rate loans. All these point to the fact that rates are going to fall soon.
Do you feel the norms for construction funding are in shape,or you would like to see some changes there?
Developers need funding for construction work, and banks see construction financing as a shortcut to retail loans the bread and butter for the banking sector. Although construction loans are available at rates varying from 13.5-14 percent to 21-22 percent, depend- ing on the profile and track record of the developer, banks need to be more pro-real estate. Apart from the land and ready unsold properties, banks do not consider under-construction structures or money awaited from some sale while lending. This is probably out of fear that in case of a default, recovery would be difficult. So, the banks need to be more flexible in funding to developers, because that would also be the key to their survival in the mortgage business.
The developers have virtually been pushed to the wall in terms of sky-rocketing land prices, various levies on them and the low margins of return. It’s time that government stepped in to provide succour to them, so that the industry regains its glory of yesteryear.
PM Narendra Modi has a track record of being pro-development. What all are the expectations of the industry from him?
The first thing the Prime Minister needs to take care of is the monetary policy, it’s been too unpredictable, of late when you expect the repo rates to go down, it would go up, or the vice versa. The government should ensure an element of certainty in its policies. While planning lending, lending institutions need to be assured that their loans would fetch them steady returns at least for the next two-three years, instead of being always worried about the possible losses due to erratic policy changes. The industry needs to be relaxed that way to focus on the business.
Change is always welcome, and like everybody else, I would also like to believe that the new government will deliver on its promises. It has already put infrastructure development on the top of its agenda. Let’s hope those words trans- late into action sooner than later.
Any suggestion would you like to make to the new government that could benefit real estate?
Since many a time borrowing from banks is not all that easy for the developers, I suggest that the government take some step in this regard possibly create a Real Estate Fund, or make some allocations to keep the liquidity flowing into the construction business. If required, the developers can be categorised as per their profile and track record for the purpose of government funding. The government must make some regulation, some policy through which developers can borrow money at lower rates of interest, so that when there is a good project coming up by a developer with a good balance sheet, he does not have to keep running around the bankers alone for fund requirements. If government funding can be made available for other infrastructure projects and departments, why not have a similar arrangement for the real estate as well?
Let cheaper money in
“Infrastructure development being on top of the Modi Govt agenda, it must make some regulation, some policy through which developers can borrow money at lower rates of interest ”
But funding by the government would come with greater government control on the sector…
I don’t think government control would be an issue. After all, cheaper money coming the easier way will also lead to softening of property prices, thereby benefiting the consumers! Plus, government interventions could also rein in corrupt practices in the sector to some extent, which would prove a money saver for the realtors, benefits of which will again reach the buyers finally.