The real estate sector is going through a transition period as regulatory changes like Rera are nudging the industry into consolidation mode. Many weaker players are fading away while new stronger players are emerging to take the industry forward. The Hiranandani Group, famed for developing two major townships at Powai and Thane in Mumbai sees a bright future for the real estate sector. The sector will come out strong over the next five years, driven by the government’s focus on affordable housing and infrastructure spending says Niranjan Hiranandani, co-founder and managing director of Hiranandani Group during an exclusive interview with Ashwin J Punnen of Financial Chronicle. Edited Excerpts.
There were lots of regulatory changes over the last two years for real estate sector. How is the industry responding to it? Does it have a positive rub off?
There are three aspects of it. First, the macro aspect. It is not governed by industry specific but the overall market. If you see the regulatory changes that have taken place like demonetisation or GST or insolvency law, they are compounding the whole economy. What is industry specific, is Rera. While the three out of the four changes are in general affecting the industry, the fourth one added together, radically affect the real estate industry.
How have these changes affected the real estate sector?
Actually in the first six months of demonetisation, every single industry was affected and when GST came in everybody was affected. While Rera came in, almost 20 per cent of the developers were eliminated. Insolvency laws have compounded a problem, which we had hoped would actually sort out the problem. We had a lot of gray areas in 2017, brought in by the regulatory framework and all with good intensions. But this instead affected the industry. The question is what are the short and long-term impacts. In the short run, it negatively affected the industry. When Rera came in you had to deposit 70 per cent, when GST came in you had to charge higher rates and still give the benefits. Old buyers were in a quandary. All these issues were falling into line. But it has hit a large part of the industry.
Has the real estate industry come out of the woods?
I am not saying the worst is over. For 20-25 per cent developers, pain continues. That doesn’t mean positive things are not taking place. Those who are suffering will continue to suffer, while new ones will come up.
For instance in Noida, two lakh apartments are getting completed but are stuck in insolvency or shorter funding. Noida is worst hit in the country. In fact, western and southern regions are less hit than the north. But I see a lot of positive things taking place in the real estate market.
Do you think stronger players will emerge?
Definitely, that is bound to happen. Many players may fade away while new stronger players will emerge to take the industry forward. And there is a good opportunity. It is a period of transition. And those who can adapt to the new system. Every recession follows with a rising market. There is no permanent boom or bust. It is always cyclical. Same thing happened in 2008 when Lehman crisis took place and the market was in a very bad shape but fortunately that crisis only stayed for two and half years. So it was not a long crisis. Nobody can control the cyclical effect of the market.
The cities have been given a focus because of which the 100 smart city concept have come up. Also infrastructure of cities have been improving. Look at Mumbai for instance, we have 170 km of metro coming up. We have the coastal road, cross harbour bridge and Navi Mumbai airport coming up. They are going to invest Rs 1.70 lakh crore over the next five years for infrastructure development. This is investment over five years will amount to what we have invested over 65 years since independence. What was spent in 65 years will be spent over next five years. If infrastructure is improving so are the peripheral areas of cities that are soon going develop. Earlier connectivity was not there.
Do you think the government initiative on affordable housing will be a big driver for growth?
The prime minister has given a target of housing for all by 2022. The government has set aside Rs 50,000 crore for housing in the budget. It is good that the government is taking a lot of initiative. They have come up with PPP schemes, wherein private developers will be allowed to use public land for affordable housing projects. It has given a set of concessions for affordable housing.
There is infrastructure status for affordable housing. Even tax benefits and GST rate have been bought down to 8 per cent from 12 per cent for affordable housing though we have suggested that it should be at 6 per cent.
Some changes are required. For instance, in a city like Mumbai affordable housing means 30 sq mt, even the slums are bigger than that area. So I think that is not the correct figure and they should raise it to 60 sq mt instead. Here they have done for 4 metros. These measures will have a positive impact as in next five years, definitely there will be a shift from regular housing to affordable housing. I am sure over the next five years a huge number of affordable houses will be created.
Do you see consolidation happening in the industry?
It has already happened. You could see a lot of small developers giving their projects to bigger players like Sharpooji, Godrej, Tata Housing, Piramal and L&T and several other players are taking over projects. A lot of consolidation has happened and surely it will continue.
Are you not looking at it as an opportunity?
We alreadyhave so much in hand. We want to do it but don’t have the bandwidth now. Already we are in a very large expansive mode. Huge projects are underway. But we may look at those opportunities in the future.
A lot of private equity activities are happening especially in the commercial space. Do you think this trend will continue?
I think the trend will continue as funds are required and growth opportunities are there. The sector will attract funds from large institutional investors. But most the investors are risk weary so they have invested in completed projects, which are already bringing in lease income.
What is your view on commercial property sector?
I think with 7-7.5 per cent GDP growth, there will be a strong demand for commercial property. The business activities will pick so my guess is that demand in this segment will be robust.
You are largely a Mumbai focused builder. Any plans to reach pan India?
That is true. We have a large exposure in Mumbai. But we have large projects coming up in Chennai where a township is coming up. We got in Pune, Alibag, Khandala. You are right we have large amount of exposure in Maharashtra. Our focus is more on western and southern region. And of course we also have projects in Ahmedabad. We have built international financial centre in Gift city there. We completed the whole project within a record time of 11 months.