The real-estate segment is cushioned with funds from investors and banks. Ergo, players may not reduce prices in the near future
Real-estate developers are not ready to lower the prices of their properties for end-users as they are cushioned with funds from banks and investors. The real-estate sector is flush with approximately Rs96,700 crore-Rs1,17,000 crore worth of funds, which it has raised through different means like Qualified Institutional Placements (QIPs), foreign currency convertible bonds and foreign direct investment.
“Prices won’t come down immediately because developers are utilising the funds that they have raised earlier. The correction phase will begin again, because inventories are piling up and the market has to show steady growth,” said Pankaj Kapoor, founder, Liases Foras.
According to Reserve Bank of India data, total lending by commercial banks to the real-estate sector was Rs96,701 crore from April 2009-August 2009. At present, developers are not fretting over end-user sales, as they are flush with funds; most of them have restructured their debts through the money they have raised from the markets.
“The December quarter will show 50% less sales than September because of the hike in prices. We will soon come back to the 2008 situation. I feel we will soon see sales in the Mumbai Metropolitan Region touching 12,000-10,000 units in a quarter, which is very less,” said Mr Kapoor.
End-users may have to wait for three-four months to secure properties at reasonable prices. To see a steady growth in this sector, builders will have to witness a minimum monthly sales growth of 3.5%-4.5%, considering the unsold inventories that they have in hand.
“One of the best quarters (for developers) was June 2009, when they enjoyed a healthy sales-to-inventory ratio. For the real-estate sector to exhibit a price correction, stock market valuations have to come down,” said Mr Kapoor.
Brokers say they will not boycott trading even if the bourses go ahead with their decision to start trading at 9am from 4th January, as announced earlier this month.
Stock brokers on Wednesday asked both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) to maintain the status-quo in their trading hours, until adequate infrastructure is in place, reports PTI.
However, the traders will not boycott trading even if the bourses go ahead with their decision to start trading at 9am from 4th January as announced earlier this month, the Association of National Exchange Members of India (ANMI) said.
ANMI, which claims the support of 850 members, has approached stock exchanges, regulators and the Government to look into the extension of trading hours until adequate banking infrastructure is in place.
"The Association is of the view that it is necessary to maintain status-quo on the timing, till adequate infrastructure is in place. There should not be any hurry to extend the market timing," ANMI's president EMC Palaniappan told reporters.
Even if the trading starts at 9am on Monday, ANMI will monitor the efficiency and performance of trading continuously and provide feedback to its members, Palaniappan said.
The BSE Brokers Forum, a prominent body of BSE brokers, has also asked the bourses to retain the status-quo in the current trading hours till a consensus emerges on the matter amongst various market participants.
"We appeal to both the exchanges and authorities concerned to form a committee consisting of various stakeholders to deliberate on the matter and achieve a consensus, and till such time keep in abeyance the decision to extend market timings from 4th January 2010," the Forum said in a press release, .
“After the press release by ANMI, it is quite clear that even ANMI, which represents the members of the NSE, is also of the opinion that the decision of both the exchanges to open the market at 9am should be reviewed in the interest of the capital markets,” the release added.
Reflecting the intense rivalry between the BSE and the NSE, both exchanges, earlier this month, had said that trading will start at 9 am from 4th January, nearly one hour before the current opening time, inviting protests from brokers and investors.
Although extended market hours seem inevitable in the long run, the current infrastructure and environment does not support the move, Mr Palaniappan said.
"A weak infrastructure will not be in the interest of any concerned party and investors may lose out in the short run," he said.
Citing a recent survey, ANMI said nearly 62% of its members are against the move, as extending the trading hours could put additional load on the system. However, nearly 38% members opined that extended timings will increase trading volumes.
The Association has urged the RBI to improve the banking infrastructure, as most of the banks across the country do not have RTGS facility, which is necessary for high-value transactions, he said.
The increase in trading hours at this juncture may not result in a sufficient increase in volumes, which would be essential to maintain adequate depth in execution of trades, Mr Palaniappan said, adding that a reduction in depth may act as a deterrent to investors, he said.
The move may also put undue stress on manpower, which will result in "poor productivity and costly errors" besides increasing attrition levels in the industry, he said.
“We took 10 years to build the Worli-Bandra sea link. The Sewri bridge would be 10 times more important”
For a long time, the only way a member of the middle class could dream of owning a home was to try his luck in the lottery to grab one of those badly-built apartments of the housing board.
Finally, they had one more option—make a beeline for one of the offices of the Housing Development Finance Corporation (HDFC). In a sleazy industry—most builders were out to cheat you and 40% or more of the payment had to be made in cash—HDFC shone as a professional housing finance institution. While it was HT Parekh who pioneered the idea, it was his nephew Deepak Parekh who executed it to perfection, not only growing HDFC but also setting up a bank, a mutual fund, two insurance companies, a securities company and India’s largest real-estate private equity firm along the way.
But Mr Parekh has been more than just a creator of an outstanding, professionally-run organisation. Over the years, he became an indispensable part of the Indian financial world. His wide networking skills made his office one of two or three stops for top global businessmen and officials visiting India. He has been called several times to handle crises, most recently the fraud at Satyam Computer.
He has had the ear of successive ministers and top bureaucrats. You were privileged if you were a member of the FoP (Friend of Parekh) club. After a remarkable innings that lasted 31 years in HDFC, Mr Parekh is now stepping down from an executive role in HDFC. He recently spoke to Moneylife on a variety of issues including his career. One of his thoughts concern what needs to be done for the infrastructure sector so that the pressure of housing in cities like Mumbai can be reduced and the obscene real-estate prices can be brought down.
Here is Mr Parekh in a conversation with Moneylife over housing shortage. These thoughts came out during Moneylife’s conversation with Mr Parekh as part of its Pathbreaker series of interviews. For the full interview, please look out for the next issue of Moneylife.
Moneylife (ML): Over the past few decades, the housing scene has changed, there are many new lenders, yet, many things you have advocated for at least a decade have not happened. For instance, you talked about a housing regulator, sale of flats based on carpet area, clarity on various issues… what are your thoughts on these?
Deepak Parekh (DP): The frustration or disappointment is that real estate and land is a State subject. The bureaucracy and politicians in the State are not in sync with what the people want. Like in Mumbai, what the common man wants is more affordable housing. If any government ensures more affordable housing or more rental housing, or at least makes an attempt to do it, please believe me they will win votes. But somehow, it is not attracting them. And land is such a costly thing with such vested interests that we have not been able to even scratch the surface. A friend of mine approached me a few days ago saying that she has been offered Rs1 lakh a sq foot for her apartment at Breach Candy. Should she take it? It is a 35-year old building with a garden and a swimming pool. I said please do. What are we talking about? At Rs1 lakh a sq foot it is out of the reach of everyone. Even the rich people can't afford these rates.
ML: What are the priorities in urban infrastructure?
DP: I would say that a road or a bridge that connects Mumbai to the mainland (the Sewri- Nhava Sheva link) is far more important than any other. But they make the tender document so difficult and one-sided that nobody bids for it. So you lose years. And this project has been on the drawing board for decades. What do we do? Mumbai does not have enough infrastructure and it is an island.
How can an island grow? An island can grow vertically or you have to reclaim land. But for both, a prerequisite is adequate urban transport, water, sewage and fire-fighting abilities. So unless we do mass urban transport and have new water reservoirs or the other two prerequisites, you can't go high and you can't reclaim. So prices just keep going up. And you don't have an emergency project to link Mumbai to the mainland. That Sewri bridge can really change the city. It will be a 15 to 17 minute bus or car drive and enough land is available there. We took 10 years to build the Worli-Bandra sea link. The Sewri bridge would be 10 times more important than that. We are not doing it.
ML: The scrapping of the Urban Land Ceiling Act has not made things better. Why?
DP: Maharashtra was one of the last States to scrap it. The Act is now scrapped by the Centre and finally also the State. Why was it scrapped here? Because the Centre said that it will not give you any funds under JNNURM (Jawaharlal Nehru National Urban Renewal Mission). Only a carrot-and-stick approach worked. Now, when you scrap an old Act, shouldn't you also say that all the pending cases under the Act are dropped? They have not done that. The cases are continuing even though the Act is scrapped. So no surplus land is available today and no surplus land has come into the market after scrapping ULC. Look at the Godrej land in Vikhroli. They want to build affordable housing there, but it is still under litigation. The government should have said, 'we scrap Urban Land Ceiling Act AND all existing cases under the Act will be dropped'. They haven't said that, so the cases are going on—or rather, the hearings keep getting postponed, nothing happens. Show me one plot of land that has come out of ULC.
The problem is, with us, there is no black and white, there is always grey in every law. Whether it is taxation, excise or the ULC Act. In fact, in this CEO Forum that went to the United States with the prime minister, one of the first issues raised was that we want clarity of laws on taxation and foreign investment. Please tell us ‘yes’ or ‘no’, don't say ‘maybe’ and then we run around trying to find out what is allowed and what is not allowed.
ML: There is no move to set up a housing regulator as yet. Is it because real estate is a State subject?
DP: No. Where there is a will, there is a way. It happened with electricity. How did so many States agree to break the transmission, distribution and generation chain? Initially, only one or two States were willing to do the trifurcation, the rest were not. Again, it happened because the Centre said, if you separate the three functions we will give you the funds under APDRP—the Accelerated Power Development and Reforms Programme. When there is something like that, the States comply, because they want cheaper money or they want grants or something. The same model as in electricity—where you have the Central Electricity Authority and then the State regulators—can be adopted for real estate.
Another area is the lack of uniformity over square footage that is charged to the customer. It doesn't happen anywhere else. What you can do is to charge separately for common amenities like a car park, or swimming pool or a club house, but you can't charge it on per square foot as super built-up and ask customers to pay for an area that they don't get.