We often hear about the PPP (Public-Private Partnership) model in different sectors. The realty segment is set to witness somewhat similar situation. However, it’s not exactly PPP but is BBB i.e. Builder’s-Buyer’s Benefit. With a couple of good news and festive season round the corner, developers are quite hopeful to gain the momentum which it lost in past few months. Not only the developers, but the buyers will also reap huge benefits as there are lucrative offers for them by the former
WTH FEW of the recent developments which seem to be pro industry, the realty players are quite hopeful that the sector would be on the recovery path after facing a long dark phase. The sector was reeling under the liquidity crunch, low demand and slothful sales. Ashok Gupta, CMD, Ajnara India, says, “If we closely monitor the situation of the economy in the country, this year began with a lot of focus on the political scenario due to elections. The already decreasing demand in the last year got stretched with the election season. However, the new government has come out very positive and has been doing quite a lot of things to ease the pressure of potential property buyers by decreasing home loan rates, introducing new DDA scheme and much more. And now with the final festive season of the year round the corner, the demand has started to show signs of moving north.”
Kumar Bharat, director, BCC Infrastructures, says, “Pressures of unsold inventory and liquidity constraints are one of biggest reasons behind the slow market, though the sentiment has improved post the elections. We are expecting the festive season will bring the sector back on track.”
LENDING NORMS EASED
The easing up of the lending norms would provide a big boost to the real estate developers as well as buyers. It came days after the Union Budget. This also paved the path for increasing the liquidity for banks. It would exempt the longterm bonds from the mandatory regulatory norms such as Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) and Priority Sector lending (PSL).
RBI said in its notification that banks can issue long-term bonds with a minimum maturity of seven years to raise resources for lending to long-term projects in infrastructure sub-sectors, and affordable housing. The central bank notified to consider the home loan up to Rs 50 lakh (i.e. a property value up to 65 lakh) in metropolitan city and Rs 40 lakh (i.e. a property value up to 50 lakh) in all other locations to be considered as affordable housing. To create liquidity for providing such loans, now banks can issue infrastructure bonds up to 7 years tenure. Such bonds will not be subject to any CRR or SLR requirement. This decision by the RBI will provide ample liquidity to the banks for providing home loans to the newly-defined affordable home segment. Most of the affordable segment customers are also first time home buyers and therefore fund sourcing from home loan becomes very important to them to manage the deficit. RBI’s step will turn the developer’s focus more on the affordable home segment and it will improve the supply of affordable homes.
This is expected to create more and better choices for home purchase. RBI would also regularly review the affordable home definition to counter the inflation effect.
Vikas Bhagat, director, Airwil Group, says, “As the RBI has eased lending norms, now the process of procuring home loans will become easier, hence there will be a healthy competition among the banks to attract new customers. Moreover, the real estate sector is expected to see entry of a large number of first time buyers, due to easy understanding of the home loan process and quick and easy loan disbursals.”
After the RBI’s announcement about several measures in favour of the affordable home segment, the interest rate on home loan for affordable home would shrink close to base lending rate. Already some leading banks are offering a home
loan closer to base rate for affordable homes. Prevailing home loan interest rate for affordable home is around 10 to 11per cent but now, there is a chance of rate cut by the banks. The infrastructure bonds, to be issued by banks for funding the affordable homes, will be eligible to get exemption while calculating the priority sector lending. Therefore, sufficient fund will be available to the banks for funding the affordable home segment and it would also start a competition among the banks to attract new customers by rate cuts, discount in processing charges and other attractive
Arjunpreet Singh Sahni, executive director, Solitaire Group, says, “The process of procuring a home loan has become easier ever since the RBI has eased the lending norms. Now end users are expected to throng the realty market in large numbers.”
Sushant Muttreja, CMD, Cosmic Group, says, “The RBI has done away with some of the stringent norms to incentivize banks to lend for affordable housing and infrastructure development. This will allow developers to build more affordable housing units which are in high demand in our country. Presently, most developed regions become out of range for most buyers, this change in policy will greatly benefit the developers and buyers.”
Vikas Gupta, JMD, Earth Group, says, “A major impact will be that the process of procuring a home loan will become easier, especially in affordable home segment. The step is to boost real estate activities and also to benefit buyers of affordable homes who are basically end-users. In broader sense, the overall economy is likely to get a move with this step.”
It’s a win-win situation for both developers and investors. With bank credit not easy to come and interest rate on credit
from other sources being high, developers are able to boost their initial cash flows with pre-launch bookings. Investors, on the other hand, have an advantage that they need to make a low investment of Rs 10-20 lakh.
FESTIVE SEASON-ANOTHER HOPE
As the festive season knocks the door, not only developers but also the buyers are looking forward to it. While developers are hopeful that the sales would increase, buyers are looking forward to the lucrative offers.
Anil Mithas, CMD, Unnati Fortune Group, says, “Since time immemorial, most Indians tend to link property acquisition with auspicious dates. The time of Navratra is believed to be the most propitious to invest in property. We generally find that during this time of the year, the atmosphere and mood of the public is positive and outlook is happy. To enhance their experience, we are offering gold coin on booking in all product verticals and special payment plan 40:30:30 in which buyer can pay 40 per cent now, 30 per cent after the completion of structure and the rest on possession in our exclusive project The Aranya located in Sector 119, Noida.”
Deepak Kapoor, director, Gulshan Homz, says, “It has been usually observed that there is a fixed pattern of demand that persists in the real estate sector where first half of the year is usually quiet and sees normal demand graph; whereas the second half of the year catches demand due to long festive season, beginning with Independence Day and goes on till Diwali. During these months, developers launch new projects along with various offers and schemes to lure the buyers. Buyers on the other hand, have sentiments attached to the auspicious time period during this time and invest in property. Therefore, almost every festive season of a year notices very positive market sentiments.”
Gupta says, “Festive season of 2014 is approaching. Most developers are already gearing up for new launches and offerings in the market. The offerings may include heavy discounts, even between 8 to 15 per cent, depending on situation of location. Discounts were not given in the last festive season due to weak market sentiments.”
Bhagat says, “The recent policy decisions by the central government are acting as a catalyst for the market sentiment and there is widespread optimism among the buyers. It is therefore, we expect real estate business to pick-up this festive season.” He further says, “Developers usually wait for this period and currently the season is well timed in terms
of policy decisions by the central and state governments. The market sentiment is positive currently. As always, developers have lined up various offers to sweeten the deal for buyers. It can also work like catalyst for some buyers to rethink about their decision. But we are expecting good response from the end-users.”
Demands Yet to Meet
Notwithstanding the couple of steps to boost the sector, there are still many demands which the realty players have from the government. The most common being the single window clearance system. MK Gupta, chairman, KPDK Buildtech, says, “The current government has started very well and there are a number of things that they are doing for this sector and the society. The best thing that the government can do soon is to provide a regulator so as to curb the mis-happenings and fraud faced by the buyers along with continued monitoring and supervision of the ongoing transactions. Apart from this, a single window clearance system is need of the hour as most projects get adversely affected because of delay in approvals and licenses.
Kumar Bharat of BCC Infrastructures says, “Developers are waiting for the policies like – establishing a single window clearance system, evolving a rational structure on payment of stamp duties for sale and purchase of land and properties, etc. These activities are time-consuming and sometimes hamper the construction or supply of the units.”
Gaba says that as the industry is a huge employment generator, the government must give real estate an industry status and the challenges faced by developers must be seen through the spectrum of growth possibilities. Establishing a single window clearance system, evolving a rational structure on payment of stamp duties for sale and purchase of land and properties are some much-needed initiatives by the new government.
With few policy changes and positive moves, the sector is hopeful that it can move on the recovery path which could be made much better if regulator comes into place and a liberalization of FSI norms is done besides progressive land acquisition policy and incentivized policies to boost affordable and rental housing.