Rajeev Talwar, Chief Executive Officer and Whole-time Director of DLF, and JC Sharma, Vice-chairman & Managing Director, Sobha Limited, present the real estate picture of India and their expectations from Union Budget, during a candid chat with Dimpy Kalra, Zee Business. The Union Budget 2019-20 will be presented by Finance Minister Nirmala Sitharaman on July 5, 2019. Edited Excerpts:
Q: Government’s interim budget had a special focus on real estate sector. Do you think that something historic can be announced for the real estate sector?
Talwar: I am sure that finance minister Nirmala Sitharaman, while presenting the union budget on July 5, 2019, will announce several things that will benefit the real estate. In fact, all the three areas, namely housing, real estate and construction, are related to the same industry and its growth can help the government in creating job opportunities and give a boost to the GDP. Announcement related to the real estate sector will bring relief to our customers as well as those who invest in homes. I hope that the budget will benefit the real estate industry.
Q: Name the segment, luxury, thematic real estate and affordable, where the government will have a bend?
Talwar: See, about 90 per cent demand comes from the affordable housing section, maybe it is for 300sq ft or 600sq ft or 1000sq ft and the remaining 10 per cent comes from other segments. So, if you want to build 6 crore homes before 2022 then 60 lakh homes should be built in the second category. Thus, it will provide ample work opportunities for everyone. In fact, this is an industry that demands almost everything like cement, steel, sanitaryware, glass and wood substitutes as well as mechanized construction and labour. So, the entire nation will be benefitted from it.
My first demand from the government is that it should index the works undertaken under late Vajpayee led Union Government between 2000-2004 because it was a proven measure, which has benefitted then sector as well as the nation.
My first demand is that the government should index the works undertaken between 2000-2004 by the government led by late Atal Bihari Vajpayee because it is a proven measure that has benefitted the industry and increased demand across the country and the projects launched in the period were also able to grow in a nice manner. In fact, it helped us, the sector, housing, construction and real estate, in meeting the target of creating 10 lakh jobs/month. It also increases government revenues. So, indexing the steps for inflation will stop us from reinventing a wheel and help the industry/sector ahead.
Our second demand is related to GST, which is dependent on tax trail and its complete philosophy is based on tax trail and it seeks to bring almost everything under tax net and benefit people and increase revenues. So, we are anticipating that the GST Council has taken a good decision of bringing affordable housing under the tax net of 1 per cent and remaining housing schemes in the tax net of 5 per cent. Undoubtedly, they are free to keep GST rates as per their wish but should introduce input tax credit because the tax trail is dependent and based on the input tax credit.
The third thing is that we haven’t given a thought about rental housing. However, yesterday’s newspaper said that the government is thinking about providing rental accommodation to the poorest or the poor who is moving to a city for subsistence. So, incentives should be provided to turn the rental housing into a reality under which people should not restrict themselves to just one house but can buy more houses and rent them. In fact, an increased number of homes will help in reducing their cost as well as rentals. It will benefit all. Incidentally, the government, earlier in its interim budget said that if you are selling one house than you can buy up to 2 homes.
I think no taxes should be imposed on a person who invests in a new house/s after selling his house in the middle of a city/town. In fact, the investment should create employment opportunities and give a boost to our GDP. So, these are certain measures and I think my wishes will be taken into consideration in the budget.
Q: Real Estate market of South India has flourished a lot at a time when the same market has seen a slowdown in North India despite a fall in prices and increased supply. Do you think that the sector will continue the pace of growth or has reached a saturation point?
Sharma: Housing demand should be linked with employment generation capabilities. Incidentally, the highest number of Indian jobs were created mainly in half-a-dozen cities with Bangalore at the forefront because of about 10-12 million sq. ft. office space is being absorbed on a yearly basis in the city. And, the trend has been in existence for past 10-12 years. So, the highest number of white-collar jobs has been created in this city, itself, and that’s why we have seen a qualitative surge of housing demand in the city that too on a sustainable basis. The developers of the region work with a performance-oriented approach towards their customers. You will hardly find a developer who hasn’t completed his/her project on time and if there were delays than it would have been of a maximum of two years that is visible in other markets.
Looking at the kind of jobs that has been created vs the absorption on the supply side, I feel that the pace of housing demand is going to be intact in a market like Bangalore because a huge pipeline has been created in the market which will be serviced on a regular basis due to the base that is very low amidst high demand. Under such a situation, the definition of affordable housing of 60 meters should be reworked and increased up to 90 meters and the value of up to Rs45 lakhs should be taken up to Rs75 lakh. Introduction of these two-four steps in the budget will help in improving the sentiments of the so-called middle-class, who can afford them. It will be beneficial for both the sector as well as the government.
Q: Suggest ways to solve the problems related to the unsold inventory in North India?
Talwar: I would like to say that the word ‘Unsold Inventory’ being used by media and the government is completely wrong or is opposite to what is happening. We consider them as unsold inventory because, in the last 70 years, we have got used to with a thought that there will be a shortage in the country. Actually, we have been thinking small and are dreaming about the ways to manage the shortage. In fact, we have stopped thinking big, but we both, the Prime Minister and I, feel that while thinking and talking about India we will admire it as a big nation and try to create a surplus.
Thus, what is an unsold inventory for you is surplus for us and few companies have been able to create a surplus. This facilitates the buyer to see their house while buying it. In short, surplus ends uncertainty and helps the builder in getting the best price for the project.
I feel that people including media should start talking about a situation when surplus is created across India. As, we have done it in case of vehicles, telephones and gas connections. It will create a situation in which products, which were sold at a premium rate or in black at higher rates due to its shortage, will be available in surplus and sold at an ease. And, both of us are aware that surplus creates a situation where the price is minimal. For instance, there was a time when the vehicles used for three years was able to fetch more value to you when it was sold but now discounts are offered even on the purchase of new vehicles. That’s why creating a surplus is a good thing.
Sharma has talked well about the kind of demand that will exist in Bangalore in the coming years. But, being the chairperson of National Real Estate Development Council (NAREDCO) I will have to think about the country and look forward toward the ways to create a surplus situation in every city to create a situation under which people, even after a decade or more will be able to get homes at a minimal price. Similarly, the rentals also remain at a moderate level because people don’t think only about financial security but also about emotional security. For instance, suppose, I have a home in Delhi and got transferred to a new city, but this doesn’t mean that I should sell off the house that I had at Delhi to buy a new house in the city, where I am shifting. But, I can rent my house in Delhi and get a house on rent in that city. and this is the right system. Therefore, I would like to request you to not get worried about the unsold inventory but should start thinking the ways to build surplus with an aim to allow a customer to have a look of the house before applying for a loan, decides his EMI and invests in it. Because, a person, who is residing in rented accommodation will be happy to get his own home by paying his monthly EMI at the same levels that is almost same to the sum that he was paying in form of rent. What can be better than this? In fact, he is just not investing for himself, but it acts as an emotional factor even for his/her children.
So, we should move forward to create a surplus situation and stop thinking that the homes are not being sold due to the price issues. Strengthening of GSP, as well as financial conditions, will allow people to move and buy the homes. We are used to a situation where there is a shortage in term of houses and that’s why people were talking loans to invest. And, you have seen that what has happened, and houses were not built in many areas. So, we are trying to create a system where the financial situation is good, and people are investing in developed houses, so that they may not get a chance to complain.
Q: There was a time when loan rates were quite sensitive in which reduction of interest rate by 0.50% or 1% had an impact on both the bank loan as well as the real estate. Is that sensitivity available till date or not?
Mr Sharma: I think, the real estate sector, as well as India’s investment and consumption economy, can be sustained by bringing down the interest rates reasonably. A lobby is working in our country, that is offering extra protection to the savers (those who save money) and not allowing them to take risks. They want their money to remain in the Providence Fund (PF) and invested in insurance and banks. This is something that is hurting to the equity market as well as trade and industry. There is an absence of competitiveness at the macro level and the individual level. How will you be able to sustain the economy in a condition where housing loans are available at a rate of 9 per cent while the personal loan and education loan are offered at a rate of around 12-18 per cent. The banks are facing systematic challenges like liquidity issues, profitability concerns and disruption caused due to NPA.
Despite RBI’s efforts, the real rate of interest in our country stands at the highest levels. We are not being able to bring down the interest rates although inflation rates are at its lowest levels at present. Reducing this interest by 2-3 per cent will create a different market because money outflow is EMI-linked and reduction of every 1 per cent will have a great impact on EMI and cash outflow. If you have a look at a developed economy, then the balance sheet of the banks is running on the housing mortgage. If you look at the customers, then you will find that the loan book of the house remains open despite the person, the recipient of the loan is no more. So, it is also acting as a wealth.
To increase house ownership in India and deepen it then we will have to reduce the interest rates and the nation is ready for it because inflation is very low. Interestingly, India is the only country where you can give a boost demand. Mr Talwar has said, earlier, that we should think big and the old thoughts were related to shortage economy where facilities like technology, capital, demand and employment opportunities were not available. But, today, these factors are favouring us, and we are supposed to create demand. Monetary Policy can play an important role by leveraging it especially in the case of the housing industry.