Real Estate: Expectations From Budget 2020

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Real Estate: Expectations From Budget 2020
Deo Shankar Tripathi - 30 January 2020

The housing sector performed well till August 2018 owing to initiatives such as housing-for-all scheme, comfortable liquidity fuelled by substantial demand in affordable housing. Housing sector within the realty space grew by 18 per cent while housing finance companies recorded a robust growth of 27 per cent the same year.

However, the IL&FS default of September 2018, toppled the game resulting in crisis of confidence and risk aversion. Flow of funds from debt capital market and banks to HFCs and NBFCs almost stopped. Fearing imminent liquidity crisis, almost all HFCs and NBFCs stopped lending loans to individuals as well as developers.

Gradually, as the situation began to improve, banks started funding top-rated HFCs and NBFCs at a somewhat little higher interest rate.

Nonetheless, due to a slowdown in an economy, there has been slight rise in NPA of HFCs, which is expected to moderate as the economy improves.

The Reserve Bank of India in tandem with the government launched a slew of reforms. Banks were advised to extend provided relief with a support to buy loan pools, relaxing minimum retention period from 12 to six months under securitisation guidelines and improving system liquidity to facilitate pool buy out by banks.

This helped HFCs and NBFCs to manage liquidity for timely repayment of contractual liabilities. Government-approved Rs.20000 crore housing fund with the NHB to provide liquidity support to HFCs under normal refinance scheme and also Rs.10000 crore fund under Liquidity Infusion Facility. From February/ March 2019, many HFCs were able to resume disbursement at lower than normal level, while many small HFCs could not do so.

The NBFC liquidity crisis hit the real estate sector really hard, which was already saddled with huge pile of unsold inventory, stalled and delayed project completion. Several on-going projects got stalled and new launches were put on hold due to lack of funding. Taking cognizance of the importance of the sector, the Government and RBI took a slew of initiatives to revive the sector.

Looking forward to this Union Budget, the residential segment of the realty space is expected to show signs of improvement. The low-interest-rate environment following multiple rate cuts by the central bank and number of measures by government to give a fillip to economy are expected to revive the demand for housing and its supply. Housing sector is poised to grow at 14 per cent to 16 per cent between 2020 and 2024. The major growth is expected in low income affordable housing up to Rs 15 lakh loans from smaller cities, affordable and mid-housing from 15 lac loans up to Rs. 50 to Rs. 75 lakh from other cities.

Mid-size and large developers are expected to launch many projects in affordable housing mainly in range of Rs 25 to Rs 45 lakh to cater a growing demand.

On the other hand, experts are of the opinion that, the commercial real estate will continue to witness strong demand in 2020. Stable demand from IT companies, start-ups, and co-working spaces will drive demand.

In 2020, the real estate sector is predicted to attract total investments worth $6.5 billion, a growth of 5 per cent over 2019. The commercial office space, which constitutes just 12-15 per cent of the total property market, will be the primary driver for investments. Liquidity position of HFCs and NBFCs is near normal. Banks are now supporting the sector on their business model. Only very small HFCs have concern of liquidity.

Overall year 2020-21 looks positive Various regulatory measures announced by RBI and expected guidelines on securitisation will strengthen HFC and NBFC to become more strong and resilient to support economy.

While the liquidity crisis of 2018 had a ripple effect across sectors, undoubtedly it brought in a lot of reforms aimed at strengthening the real estate sector.

The sector is gradually transforming itself to asset light model with better asset liability management and de risking from future liquidity crises. The dictum holds good “never miss a crisis”

The author is the MD and CEO, Adhar Housing Finance

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