Stating that the existing home loan rates were the lowest in the last four decades, Keki Mistry, Vice Chairman and CEO, HDFC Ltd, said on November 26 the lower interest rates are likely to continue for another six to 12 months.
He also observed that all real estate developers may not be able to avail the benefit of the Reserve Bank of India's (RBI's) one-time restructuring scheme as they might not meet the required financial ratios and have the necessary credit rating.
"Restructuring may not necessarily help every developer because not too many will be able to meet the criteria laid down in terms of meeting the various ratios and getting credit ratings,” he observed.
He was speaking at the ongoing virtual NAREDCO’s Real Estate and Infrastructure Investors’ Summit (REIIS) – 2020 in association with APREA.
“The home loan rates have been the lowest in the last four decades. For the next six to 12 months, the benign interest rates environment will continue. The growth in the economy and the real estate has been sharp. The factors like the RBI infusing much needed liquidity into the sector, various concessions given by the government, and the developers like the stamp duty relaxations have extended the best buying opportunity for the homebuyers. The trend will continue with the lowest interest rates regime,” he said.
He, however, cautioned that the RBI may face some pressure owing to higher inflation that will reduce its ability to cut rates further.
Benign interest rate regime will continue going forward and that rates will go up only after economic activity gathers more pace and inflation pressure rises, he said.
He also observed that the banks are now distinguishing between the strong and weak developers for lending, hence improving the quality of balance sheets.
“Avoid over-leveraging and stay well-capitalised,” he advised the developer community.
"From a developer's perspective, the important learning, not just post-COVID but pre-COVID, is to just strengthen the balance sheet. Bring in more equity and do not over-leverage. The market will reward you for not over-leveraging. The more you leverage, the more pain you will face in the days to come," he said.
Interest rates are a function of perception of credit risks, he said, adding that "I think quality developers will, even today, be able to access money, not at 6.8 per cent or 6.9 per cent because the risk premium on a developer loan even from a prudential perspective is higher than what it is for an individual, but at relatively good rates".
However, weaker developers will find it difficult to raise money unless they improve the quality of their balance sheets, he said.
Mistry said compared to six months ago, demand for residential properties now has picked up as people are beginning to believe that this is the best time to buy a property due to lower interest rates and as property prices have gone up in the last few years. At present, it is difficult to say whether non-performing loans (NPLs) in the real estate sector will come down in near future, he said.
"I don't think that it is going to be that easy where suddenly overnight NPL are going to come down. You might even see an inching up of NPLs in the real estate sector, not significantly but slightly in one or two quarters before things stabilise, lets say two or three quarters down the line," Mistry said.
He said consolidation in real estate sector can happen and should happen going forward, however, the problem is that it happens at project levels and not necessarily at entity level.
He noted that the investments in creating co-working spaces will grow in the near future and more consolidation will happen at the project level.
Commenting on the real estate trends this festive season during the COVID-19 pandemic, other real estate experts who spoke at the forum, said the residential real estate segment had registered a growth of 83 percent in the number of residential units and the growth in the sales value by 72 percent over the last year.
Anuj Puri, Chairman and Founder of Anarock Property Consultants, observed that the affordable housing segment will continue to grow. “The residential sales in the July to September quarter is 67 percent of the Q1 sales of January to March 2020, which is a clear indication that the affordable housing segment is back in action,” he added.
In the commercial segment, Puri said this year, about 23 million sq ft of new office space leasing is expected while the REITs will continue to attract foreign investments.
He informed that the rent collection has been between 97 percent to 99.5 percent during the April to October period that indicated a revival in the office segment.
“The joint efforts of APREA and NAREDCO in liasioning with the government to boost the REITs framework in the country have driven heavy investments in this segment,” he added.
“The start of the pandemic saw a few months of zero sales but soon people realized the value of owning a home which saw a severe turnaround. The volume will increase in the coming months and we expect the momentum to continue,” said Neel Raheja, President, K Raheja Corp.
“On the commercial front, the new leasing market has been slow due to the uncertainty of the pandemic. We are seeing a trend of offices shifting from Nariman Point to BKC; few of the companies are also preferring to move to far-off areas like Navi Mumbai, Thane, etc. Also, we can see 75-80% of the demand for offices is coming from the global companies. People cannot continue to work from home for a longer period of time and we expect the commercial market to be back once things start to move slowly,” he added.
He also cautioned developers against increasing prices at this stage, saying that it would lead to a decline in volumes.
Vikram Garg, Managing Director, Blackstone, observed that as the global interest rates have been low, the global fund managers are bullish on the country like India. The domestic individuals have founded a great investment class in REITs, which has created large investment opportunities as a saving instrument.
Sharing insights into the SWAMIH Fund, Irfan A. Kazi, Chief Investment Officer, SWAMIH Investment Fund said: “In our funded projects, the emphasis will entirely be on construction. The developer has to complete the project regardless of whether the sales are happening or not. The fundamental reason why this funding is coming-in is based on the premise that the completed inventory will sell. The SWAMIH funding is not only for stalled projects but it is also for the stressed projects where the pace of construction has been hampered due to lack of funding.”
The government’s Special Window for Affordable and Mid-Income Housing (SWAMIH) was set up in November last year to provide last-mile funding for stalled real estate projects by the government.
SBI CAP is the fund manager of SWAMIH Fund.
The fund was to help complete over 1,500 stalled housing projects, including those that have been declared NPAs (non-performing assets) or admitted for insolvency proceedings. The move is likely to help 4.58 lakh housing units across the country. Only RERA-registered projects with the positive net worth will be provided with funds.