The Union Budget 2023-24 is just around the corner and expectations are abound across all sectors. With Indian housing prices having recovered from historic lows in 2020, there is excitement in the real estate and housing sector as well. The Hiranandani Group has been an active player in this sector for long enough to have survived several recession periods and thrived during the housing boom. To diversify its business, the group has also forayed into several new sectors including energy and data centres.
In an exclusive interaction with Outlook Business, the group’s Founder and Managing Director (MD) Niranjan Hiranandani reveals the group’s future projects as well as his 2023 outlook for the Indian economy amidst a global economic downturn. Having been in the real estate space for decades, he also shares his insights on where the sector is heading and its expectations from the Union Budget 2023-24. Edited excerpts:
In 2022, the real estate sector faced several challenges like rising construction cost and high interest rates. What is your outlook for 2023 and what measures should the government announce in the Union Budget 2023-24 to spur demand for the housing sector?
We need to understand that despite it being a challenging year, the growth in residential real estate has been more than 15 to 20 per cent and even the home loan segment has grown. That’s a huge outlook from the financial sector as well because they are supporting the housing sector. Overall, there is an increase in demand for homes across the board but an interesting bit is that the demand in premium segment has been higher than the affordable housing segment.
Coming to interest rates going up, that has definitely been a negative for this sector because otherwise the growth would’ve been even faster. In addition to these, the demand patterns of people changed post the COVID-19 pandemic. For instance, more people working from home meant them needing more space and hence, in some cases, moving to a larger apartment. If you look from a long-term perspective, high interest rates don’t matter much in terms of home loans; when the interest rates go up, EMIs go up, but when they come down, EMIs also come down. Hence, people are still willing to borrow money at a higher rate of interest because they know that it will average out over a period of time. This is definitely a positive element in the marketplace and it will continue to grow.
Previously you have said that 'rental housing' needs a boost. Please share your perspective on this for 2023?
If one looks at the Foreign Direct Investment (FDI) coming to India, it’s mostly going towards commercial real estate, and not towards residential rental housing. This is mainly because the returns in case of commercial real estate are higher as compared to residential rentals. Hence, we are requesting the Finance Minister to increase the standard deduction for residential housing from 30 per cent to 50 per cent, so as to improve investment opportunities. The simple idea is that if you don’t create more rental housing, you will not get quality at affordable prices.
The Hiranandani Group is the market leader in Mumbai and other top cities in West India. What are the group's expansion plans for North India?
We are not immediately looking at North India. Even though we have studied some opportunities, we are busy with West and South India for now. In the latter, we have quite a lot of presence like in Chennai, Bangalore and so on. However, as far as our companies are concerned, we are investing in data centres in North India like the one in Greater Noida. We will continue to expand but don’t have immediate plans.
Renewable energy is gaining a lot of momentum and the upcoming Budget 2023 is expected to announce measures in its favour. So, can we expect energy infra dovetailing with housing in a beneficial way in the near future?
Of course! We work on green buildings and that, in itself, means energy efficient. In terms of renewable energy, if we look at solar power, we need to understand that if we want to achieve scale, it is not possible in these buildings that we have to do with. This is because the area which is available to us for putting up the solar panels is limited. So, we would rather tie up with companies which have been doing and dealing with renewable energy, rather than actually do it on top of the buildings.
So, yes, energy infra and housing can dovetail but not necessarily as the quantum of energy that a building requires is large and just putting solar panels on the top of the building will not generate sufficient electrical energy.
Despite fears of recession in the US and Europe, many experts believe that 2023 is India's year. What is your outlook on that, considering supply chain issues still exist?
There are two glaring factors in the present world. First, if we look at China’s situation, the rampant spread of COVID-19 has definitely created supply chain issues. As far as other places are concerned, the Russia-Ukraine war has created a crisis, which is also leading to recession. In many cases, even growth is negative. Since India is connected with all these countries for trade, commerce and other things, all these layoffs and other issues will obviously affect India as well.
However, with our demographic dividend, there is a huge supply and demand in India itself. We are also developing infrastructure, housing, building on manufacturing, working with PLI schemes and so on. Considering all these factors, despite a disruption in supply chain, I’d say that India is still in a quite better place. As compared to other countries, India is growing at 6.2 per cent even though I’d love to see double digit growth.
Adding to this, while exports will be affected, our own investment strategy in growth is working because of India’s demographic dividend, manufacturing and even interest of opportunity. Secondly, employment is relatively higher in certain industries. If the internal focus can be on growth of those business services and industries which hire more, I think that can lead to something. I believe that in 2023-24, we should target double digit growth, which should be beyond 10 per cent. And if we want to become a $5 trillion economy, we have to do it despite the present circumstances.
Warehousing and logistics segment of the real estate industry is under scanner for 2023. Does Hiranandani Group plan to expand in this area, perhaps, tier 2 and tier 3 cities?
Yes, currently we have GreenBase, a 50:50 joint venture between Hiranandani and Blackstone. We are also focusing on some projects in Maharashtra, Tamil Nadu, West Bengal and parts of North India. Now, what has happened is that octroi has been removed and there is centralised GST. Since roads and highways are now better connected, there is a large amount of investment in warehousing and logistics. With this, even tier 2 and tier 3 cities are growing with better quality houses, warehousing, logistics and so on. Hence, we are certainly looking at it very seriously.
Consumer confidence in the real estate sector is paramount for the sector’s success and the Budget 2023 may have some bearing on it. Please share your thoughts on this.
I do believe in roti, kapda and makaan (smiles). In India, if you don’t have shelter, you don’t have any social security. The standard deduction for home loans has been Rs 2 lakhs for last 10-12 years. We have been saying that since the cost of house and interest rates have gone up, this amount should also be raised up to Rs 5 lakhs, if not removed completely. People need to get this standard deduction and then invest in more homes.
Also, the Reserve Bank of India (RBI) needs to change the loan to value proposition, which they give up to 65 per cent, unless it’s affordable housing. So, we are suggesting that this amount should be brought to 90 per cent. In India, the NPA in retail home loans is less than 1 per cent, which is the lowest in the whole world. Surprisingly, 50 per cent of the people who take loans for 15-20 years end up prepaying them in just seven years and hence, banks are always happy to give retail home loans; it’s just that they have to give it at low rates of interest, making it more competitive.
I think we have spoken about many things now, Mr. Hiranandani. So, how would you sum up your expectations from the Union Budget 2023-24?
Investment has to be increased; you can’t slow down on it. This doesn’t mean that you don’t look at the deficit, but you must increase investments into India as there are some long-term things which are working favourably for the country like roads, highways, infrastructure, ports and so on. Interestingly, the value proposition of logistics, for any item you buy in India, is around 13 per cent. So, if you improve logistics in India, everything that you buy has the ability to come down by six per cent. This is a hidden cost from which our country can benefit; hence, investments need to continue.