INTERVIEW/SANJAYA GUPTA, MD, PNB HOUSING FINANCE

The seven-year cycles do come, and this seven-year cycle is probably getting over, especially in the mass housing segment

Sanjaya Gupta, Managing Director, PNB Housing Finance, talks to Teena Jain Kaushal and Priyadarshini Maji about the real estate market, interest rate movements and his expectations from the festive season.

How do you look at the real estate market at this point in time?

The real estate sector is very resilient. I have been in this sector for 30-odd years. So, seven-year cycles do come, and this seven-year cycle is probably getting over, especially in the mass housing segment. I think it’s going to get over in 10-12 months. In this, the RERA (Real Estate Regulatory Authority) Act will help a lot. It will bring – as states adopt the law – benchmarks in the sector and method to madness.

Till now, everybody has had the right to throw stones at anybody, and we don’t know what is right and what is wrong. The RERA Act will bring benchmarks for bankers, for developers, and for customers.

There was no shortage of developers who never cared for customers, and they had different rules for safeguarding their interests and customer interests – that’s why it has kind of bounced back on them.

All real estate developers are not bad and all are not good. Unfortunately, marginal developers have put up such a bad show that customers have become worried about putting their money into housing. We should be cognisant of the fact that Indians are very much loanaverse. We can go till 90 per cent (of house value) for certain loans, or 85-75 per cent, but at the industry level, we see that the loan-to-value figure is no more than 65 per cent. Basically, the customer puts in his or her hardearned money before taking a loan to buy the house and then comes face to face with trust deficit because of delivery delays, horrible standards and agreements getting violated. That is why people are just refusing to buy a house. It’s unfortunate.

Will this festive season cheer the real estate market?

For the past five years, there has been no festive season (for sales). In fact, according to our data and analysis, the festival season has been bad for sales. Now, just the first five-six months of the financial year go well. So, the cycle has reversed, as there are many smaller items that the

“CURRENTLY, WE DON’T KNOW WHO IS RIGHT AND WHO IS WRONG. THE RERA ACT WILL BRING BENCHMARKS FOR EVERYBODY”

customer purchases during the festive season, especially cars. A large number of people also travel abroad during October-November. There has been a change in the behaviour of the Indian customer, which is why launches do not happen during the festive season.

What are some of the new schemes in the market compared to last year?

The schemes are the same but they have been wrapped differently. One is the subvention scheme, where the developer makes some payments till the house is not handed over to the buyer, which I think is very nice, as he does not have to pay rent as well as the interest on the disbursed amount. Then, there are buyback schemes which, obviously, we do not entertain at all. Also, first, developers used to ask for advance disbursement, but today they are concerned about constructing more and demanding less, so that’s a very positive thing. This has been happening because developers want their customers to be happy and convinced about their purchase decision.

There is one more change. People are buying after the construction is over, and at that time developers are looking at maximising profits. At the beginning, the developer will squeeze profit margins and be willing to deliver at a reasonable cost, but once the house is constructed, then its price will go up. Sales velocity is also taking off once the project is 65-70 per cent complete. Earlier, sales velocity used to peak at launch, because people were in a hurry to make a good decision. But today that doesn’t happen. This is actually the best time to buy a house because you are getting a lot of choices and prices are low. Home loan rates are reasonable, in single digits, the price per sq. ft. is stable, and choices are multiple.

Location and the type of house are important factors too. For example, people who look for affordable houses are wage earners and they have to be close to their place of work. So, there are three Ps in the segment. One is place – it should be well connected, have public transportation, and should be affordable. Two is pricing. Third is the product – let’s not give them houses where they cannot even spread their arms and legs.

As an institution how do you help people buy the right property? Do you have any lookout points for them?

What we have is a strong legal and technical team which, along with our credit team, pre-approves projects. So, whether it is title or approval or past delivery experience, we undertake due diligence on all these things before approving the project. We always guide our customers. So, if somebody comes to us and asks for our assistance, we provide that. The unfortunate part is that customers don’t come to banks or housing finance companies for making a choice. Pre-approving costs ` 20,000-25,000 per project and so we create that inventory to service our customers better. The worst thing is that if something goes wrong, the customer blames the bank, though we are the bigger victims than the customer. Customers put in 20-25 equity. We have to take care of the majority portion of the bad loan.

However, if customers have already made a decision, we cannot give a suggestion. We have about 5,200 active projects but nobody comes and asks us. They come only when they have made a choice.

Do you expect further cuts in interest rates?

We are almost at the bottom in terms of interest rates. What difference does a 20-25 bps rate cut make? It is not much. If inflation is 5-6 per cent, the effective rate of interest is only 3-3.5 per cent.

Why are lending institutions not fully transmitting the 150 bps rate cut by the RBI over the past several quarters?

The only transmission has been of 68-70 bps. Credit is a big thing in our economy. Credit/debt markets are very narrow. There are not many opportunities for us to raise debt. Banks cannot lend to us below their MCLR rates. So, what is left is the bond market or NHB (National Housing Bank) finance.

Also, a systemic risk will be created as most of our borrowings are at fixed rates and we are lending at floating rates. It is very good for the lending institution if rates move up because you have already borrowed at a fixed rate and the lending rate is variable. But what happens when the rates comes down, as is happening now? Every day one cannot change the borrowing basket. Going for a fixed interest rate is safer; it costs you a little bit premium but that premium is worth it.