Unemployment in the real estate sector happens over a period of time, unlike automobile where stress will be visible on a quarter-on-quarter basis. Buildings take longer to complete.
By Mitali Salian and Shubhra Tandon
Amid slowdown that is impacting all sectors in the country, Niranjan Hiranandani, president, NAREDCO (National Real Estate Development Council), and managing director at Hiranandani Group, tells FE’s Mitali Salian and Shubhra Tandon that stress in real estate is much deeper than what meets the eye given the large unorganised nature of the business. Excerpts:
What has been the impact of slowdown on the real estate sector?
In real estate and infrastructure sectors, there is no record of how many people have been unemployed in the last one year. My guesstimate is, it is anywhere between 3-4 lakh people, which would be known, but there is no record of the multiplier effect.
What, in your estimate, would be the multiplier effect?
Unemployment in the real estate sector happens over a period of time, unlike automobile where stress will be visible on a quarter-on-quarter basis. Buildings take longer to complete. So, hypothetically, let’s say I am not going to start any further buildings, automatically, over a period of time, people will be unemployed. So, you may record 400 or 450 people of Lodha who got removed, but you don’t know that 4,000 of his workers have gone. That is the issue we need to understand in the real estate sector.
What is your expectation from the government?
There is a liquidity crisis, which has been going on for two years now. In the short term, we are asking that banks must pass on the benefits of the rate cuts to the ultimate customer. For a certain segment, they have given the orders that all new home and car loans will be linked (to an external benchmark) compulsorily. We feel this should be done for all loans retrospectively, irrespective of the sector, even corporate loans.
What has caused this liquidity crunch for the sector?
Liquidity for realty sector was coming principally from banks before demonetisation. Post demonetisation, the money has come into banks which were supposed to lent, but they did not. They picked up AA-rated NBFC and gave the money to them. Mutual funds also did the same. So, NBFCs got borrowed money at 9-10% and lent at 12-14%. This solved the long-term problem of liquidity. However, post IL&FS issue, liquidity is gone. So now, neither are banks giving money nor the NBFCs. But the problem is slightly different. Where is the money? The money is lying with the banks. We have 1.75 lakh crore of excess liquidity, lying in the banking system, highest in the history of India.
What have you suggested to address liquidity issues?
What we have said in all our propositions is first you save the NBFCs, so that they can save us. Then we are also asking that the one-time roll-over of loans for realty projects which was done during the 2008 financial crisis on directions of the RBI, should be brought again. The situation is 10 times worse (than in 2008) and it has gone on for a much longer period, so this is imperative, otherwise your NPA in the next 6 months will quadruple.
What are the demands specifically for real estate?
GST rebates need to be given, stamp duty should also be brought down 50% in this intervening period. Rental housing policy should be brought in faster, to create rental housing stock in the next couple of years – which will boost investments through REITs in residential sector too. Model rental agreement could be a good start. I think a combination of rental housing, affordable housing, easing of liquidity crisis, and certain changes in the income tax law will solve the real estate issue.