The realty sector, which was languishing since the government’s demonetization drive and the rollout of the goods and services tax (GST) and Real Estate Regulatory Authority (RERA), was dealt yet another blow due to covid-19. While the sector contracted 5.3% in the June quarter compared to 6% growth in the year-ago period, the construction industry witnessed a contraction of 50.3%. In an interview, Hiranandani Group co-founder and managing director Niranjan Hiranandani said the sector needs last-mile funding to get back on its feet. Edited excerpts:
How can the real estate sector recover from the impact of covid-19?
We need last-mile funding as many projects are stuck. The sector’s stimulus requirement is now ₹1.5 trillion. However, we don’t need any money from the government. There are a lot of financial institutions and funds which are ready to invest in the sector. So, lack of liquidity available in the system needs to be addressed. Around 70% of the financing used to come from NBFCs (non-banking financial companies) which do not have liquidity now. Therefore, alternative investments are required to bring in money.
How can consumer demand be created?
There is very heavy taxation in the sector, both at the central and state levels. Almost 35% of the cost of housing is in taxes. So, we have asked for reduction in GST rates, stamp duty, land under construction charges, besides other charges. If that is brought down, the cost will be reduced. The ideal level of taxation for the sector should be around 15%. Recently, Maharashtra reduced stamp duty to 2% and 3%, respectively. This is the first time in India that the demand side has been incentivized. We are also requesting that GST should be reduced, at least temporarily for a few months, similar to what has been done to stamp duty by the Maharashtra government.
Are there green shoots visible?
I think the residential sector has already begun picking up. With people staying at home or working from home, we are seeing a huge demand for ready apartments. Also, with interest rates among the lowest ever at 6.9%, people are taking the benefit of that. But commercial will revive only after a vaccine comes or the covid-19 story is done. My view is that in the first quarter of 2021, a shift could be seen and people will be back to working from office.
When do you see growth returning to the sector?
By January 2021, provided the government incentivizes the sector and provides liquidity. The government must stop fooling itself. Only when you rationalize taxes do your collections go up. For instance, if you reduce stamp duty, the transactions will increase and collections will go up. Some people who had not paid stamp duty for the last two years are now calling us to get their papers ready to pay. This will shore up revenue for the government.
Have the sector’s labour issues been resolved?
Thankfully, labourers are coming back. This is extremely important. We are hoping that the numbers will increase, it is good they are coming back. I had 4,500 labourers, which came down to 1,500 post-covid. Now, we are back to 2,000. The government has to understand that 15% of India’s workforce is part of the real estate sector. If we neglect this, we are pushing people into poverty.