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Real estate is still the best investment option, says Anuj Puri
DNA  |  December 7, 2018

Dipu Rai

Liquidity crunch in the non-banking financial sector may remain for some more time, and fresh funds are unlikely to flow into greenfield realty projects. However, realty market will revive soon says Anuj Puri, chairman &ndash ANAROCK Property Consultants, in an interview with DNA Money's Dipu Rai.

 

What is the impact of current NBFC fund crisis on real estate?

 

The crisis surrounding NBFC funding has literally held India's real estate prospects hostage for now. Not only has the major source of funding for the industry come to a halt, but private equity fund flows into the sector are also slowing down to a trickle. PE players are notoriously skittish and hyper-sensitive to market signals, and they will now exercise even more caution before lending to builders. Their main focus will now be last-mile funding for housing projects that are almost complete. We may not see funds coming in for greenfield projects, which will significantly slow down the supply pipeline in most cities. However, given the current market circumstances, it is unlikely that the curtailed supply will result in an increase in existing property rates.

 

We can also expect home loan interest rates to harden over the short-to-mid term as a result of the NBFC crisis. NBFCs will be more cautious about providing home loans till the market regains some normalcy. Again, this can cause home loan rates to harden.

 

Do you think investment in real estate still attractive?

 

Look at it this way - if you're looking for generous or even just dependable profits with a low investment horizon, then real estate is definitely not the asset class for you currently. However, the market has never been better for end-users, as prices have reached the bottom and developers are falling over themselves to sweeten the deal for genuine buyers. Most Indians do not buy a home solely for the purpose of occupying them - they also expect asset prices to appreciate eventually. While the returns on investment on residential real estate may not be spectacular at the moment, there are sufficiently good reasons to consider it. The market will eventually revive. Existing inventory will be absorbed and properties will start gaining value again. Also, given saturation in most areas, buying a home at a well-connected location now is definitely a very good investment option for the future. Property rates start appreciating when there is more demand than supply. In most areas, both of these factors will eventually come into play. Therefore, real estate is still the best long-term investment.

 

Alternately, other asset classes namely commercial office space including co-working, retail, logistics and warehousing etc. can also be a safe bet owing to multiple factors including favourable economic environment. However, a word of caution to investors - the right property at a good location and the right builder.

 

In the last four years, NBFCs have replaced banks in housing finance space. What is the reason?

 

NBFCs had the vision to venture into areas where formal banking had not taken off as yet, and also began funding assets and undertakings that the formal banking sector steered clear of. As such, NBFCs have a much stronger and wider presence than banks. The banking system also became exceedingly careful about funding real estate developments, which made NBFCs the go-to option for developers and even homebuyers.

 

How will NBFCs, especially housing finance companies, will address the riskier loan portfolio?

 

The government has made it clear that it will address the need of credit to NBFCs. The RBI also intends to ease liquidity norms for NBFCs and asking banks to be less stringent when it comes to lending. Just recently, the RBI announced more relaxed norms for securitisation of assets in an effort to relieve some of the pressure on the real estate industry. One thing is certain, NBFCs will also consolidate and only stronger players will prevail in the end.

 

NBFCs and HFCs have ventured into long-term lending to builders and are also underwriting loans with long-term repayment tenures. Do you think this is a mistake?

 

NBFCs definitely took a step in the wrong direction so far as the funding was to smaller, less financially stable developers. However, long-term lending to listed developers has never been a major issue as these players mostly have healthy balance sheets. Many of them have also diversified into other businesses, which keeps their overall finances viable and dependable.

 

Is there any impact on earlier sanctioned loan amounts to developers?

 

After the IL&FS debacle, quite a few NBFCs stopped giving loans that were sanctioned to developers, in an attempt to prevent exacerbating the funding crisis further. In fact, some NBFCs even asked their developer clients to refund the previously-disbursed funds so that they could service their own debt.