CONFIDENCE IN CRISIS
Solving the Liquidity crunch requires better practices from the industry
Lack of easy flow of funds for developers means delay in project completions and no new launches, thereby impacting the inclination of consumers to buy property. All these factor have contributed to slow sales as witnessed by the real estate industry currently. However, industry leaders are suggesting the vicious cycle can only be broken via proactively changing the system. At the 11th Realty+ Conclave in Gurugram, industry experts weighed in on a new approach to the liquidity crunch.
Anshul Jain Country Head & Managing Director, India Cushman & Wakefield said, “Net disbursals by NBFCs to real estate developers has declined by almost half in the last few months. Now, the latest RBI instructions restricting participation in developers subvention schemes has further added to the grim situation.”
From a customer standpoint, the demand for real estate still exists, just the faith in developers has shaken because of lack of adherence to delivery dates. Ripples of this are felt throughout the industry, and that’s not just because of the liquidity crunch.
Gaurav Jain, Managing Director, Samyak Developers Pvt Ltd added, “Among ‘Roti, Kapada aur Makan’ home is a fundamental need of anyone, But, due to the prevailing economic scenario, this need has been pushed back in terms of priority.The demand still exists meaning the industry must make adjustments to meet the demands, and not expect the consumer to change their demands.”
THE CHANGE IN STRATEGIES
Shaji Varghese, Shaji Varghese, Executive Director, PNB Housing Finance Ltd agreed, “Affordable housing segment is at the forefront now. One of the ways to address the financial crisis will be to focus on this asset class. But, financial crisis is not the only issue, buyer’s trust on developers of delivering home on time is at an all-time low which has created problems for under-construction projects. As financers, it is our business to lend and we are always ready to invest in good projects and developers. The liquidity is available, it is the developers that will have to become organized to avail the lending.
Avnish Sharma, Partner, Khaitan & Co citing the Amrapali case, added, “The judiciary is going all out to resolve the matters. RERA is also consumer focused. These developments are gradually cleaning the system and bringing transparency. For the developers earlier practice of pre-launch of projects is no more viable and they would have to look at institutional funding options.”
Talking of institutional funding, foreign equity is also likely to help the markets. Sonu Jalan, Associate Director, Kotak Realty Fund elaborated, “Foreign Direct Investment has now been opened for townships, housing, built-up infrastructure and construction-development projects. A foreign investor looks for a safe investment and a stable exit with an appropriate equity value. Many developers with track record of performance are tapping international players for investments.”
The current liquidity crisis is not a solvency issue, but is more of a growthrelated problem. The industry isn’t asking for a complete bailout, just a balance in risk weightage.
THE FINANCIAL REVAMP
In light of the failings of NBFCs, RBI is mulling a relook at the regulation and supervision of non-bank lenders. Raman Aggarwal, Chairman, Finance Industry Development Council (FIDC) and SVP & Head – Corporate Affairs, SREI too feels that there is an immediate need for optimal regulatory controls and to create a dedicated window for NBFCs. “The average life cycle of a project from land to completion is 10-12 years. During this duration, the projects are refinanced twice or thrice and from this is where the problems start.”
Jyoti Prakash Gadia, Founder & Managing Director, Resurgent India Ltd suggested, “By industry estimates, more than 1.0 Lakh Crore of money is stuck on unfinished projects and 5 times of that is consumer’s money. We need to divide, the stalled projects in 4-5 buckets according to their status & complications and then come up with a solutions, on a project to project basis.”
All in all, a fundamental change in industry practices is the need of the hour, before we can expect the government to provide assistance via liquidity. In such testing times, only seasoned players will persist to change the direction of the wind.