‘Af­ford­able Hous­ing to Get Bet­ter Re­turns Now’

The Economic Times - - Companies: Pursuit Of Profit -

The re­cent re­forms in real es­tate sec­tor through Real Es­tate Reg­u­la­tory Act (RERA), de­mon­eti­sa­tion and the Bud­get pro­posal to ac­cord in­fra­struc­ture sta­tus to af­ford­able hous­ing are ex­pected to bring the much-needed dis­ci­pline in the sec­tor, which is un­der­go­ing a meta­mor­pho­sis and this would auger well for all the stake­hold­ers, in­clud­ing long-term in­sti­tu­tional in­vestors such as pri­vate eq­uity firms, S Srini­wasan, MD, Ko­tak In­vest­ment Ad­vi­sors, told Kailash Babar in an in­ter­view. Edited ex­cerpts:

How will the gov­ern­ment’s thrust on af­ford­able hous­ing im­pact long-term in­sti­tu­tional in­vestors’ in­ter­est? In­sti­tu­tional in­vestors have al­ways been in­ter­ested in any large ad­dress­able op­por­tu­nity and af­ford­able hous­ing is an ob­vi­ous one. While the gov­ern­ment’s thrust is wel­come, the chal­lenge of earn­ing risk-ad­justed re­turns re­main and these are in the do­main of high land cost, lack of in­fra­struc­ture con­nec­tiv­ity where land is avail­able and, most im­por­tantly, timely ap­provals for devel­op­ment. Some of these are in the do­main of lo­cal plan­ning au­thor­i­ties and the Cen­tre can do lit­tle about it. But one of the big­gest changes that this Bud­get has in­tro­duced is the limit on tax de­duc­tion on sec­ond homes at ₹ 2 lakh. With this, the Bud­get has dealt a blow to in­vestor de­mand, par­tic­u­larly in high value prop­er­ties. Sec­ond, by chang­ing the in­dex­a­tion base to 2001 and re­duc­ing the hold­ing pe­riod for long-term gains, it en­cour­ages such hold­ers of prop­erty to sell as it is no longer tax-friendly. This will cre­ate fur­ther sup­ply of high value prop­er­ties and will keep prices in check.

In­fra­struc­ture sta­tus for af­ford­able hous­ing would mean ac­cess to cheaper fi­nanc­ing and bet­ter terms for de­vel­op­ers. Will this af­fect pri­vate eq­uity in­vestors’ ex­pected re­turns? Cheaper sources of fund­ing can re­sult in bet­ter eq­uity re­turns; it is there­fore, pos­i­tive for de­vel­op­ers and their eq­uity fi­nanc­ing part­ners. What re­mains is to have the def­i­ni­tion of af­ford­able hous­ing in­cor­po­rated in RBI’s def­i­ni­tion of in­fra­struc­ture and har­mon­is­ing this for cap­i­tal flows to start. Does Ko­tak Re­alty have any plan to raise funds to in­vest in res­i­den­tial or af­ford­able hous­ing projects? We have raised com­mit­ments of $250 mil­lion for eq­uity in­vest­ments in res­i­den­tial projects, which in­cludes af­ford­able hous­ing. We are sep­a­rately dis­cussing the pos­si­bil­ity of fo­cus­ing only on af­ford­able hous­ing with some im­pact in­vestors with a fo­cus on the non-metro mar­kets. These dis­cus­sions are at an early stage and we do not have any size tar­get yet.

What would be the im­pact of de­mon­eti­sa­tion on real es­tate mar­ket? Will this lead to change in fi­nanc­ing of real es­tate? De­mon­eti­sa­tion has ob­vi­ously had an ad­verse im­pact on the high value/lux­ury res­i­den­tial mar­ket. Chan­nel checks re­veal that in the mass and af­ford­able seg­ment, customer vis­its to sites are re­turn­ing to pre-de­mon­eti­sa­tion lev­els. While con­ver­sion of cus­tomers to sales is slow, this seg­ment will pick up soon enough. The other im­pact of note ban will be in land deals, which will prob­a­bly re­sult in a bet­ter propo­si­tion for de­vel­op­ers and hence, will re­duce prices.

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