Housing finance firm HDFC Ltd chairman Deepak Parekh on Tuesday urged real estate developers faced with the pandemic to compromise property pricing for inventory clearance and liquidity generation.
“A bit of compromise in the prices by developers will revive the real estate sector on demand stimulus in the next six months. The buyers who have liquidity should buy properties now and the inventories will be available at a good price,” he said.
He also said that he expects prices to drop 15-20% in the coming months. “However, demand may revive after six months. Realtors may look at private equity, sovereign funds and HNIs (high net worth individuals) to meet liquidity crises in the coming quarters,” Parekh added.
“Given the pain in the ecosystem, developers with strong balance sheets will sustain in the long run and big real estate companies can buy stressed assets and go for stalled projects once normalcy is restored,” he said.
Parekh added that the demand for commercial real estate will continue to be there in the long run. “After the lockdown scenario, it won’t be a situation where the entire workforce would want to work from home -- people would still need to meet others, so in the long run, the demand for commercial real estate will not evaporate,” he said.
Parekh advised developers to abstain from borrowing heavily. According to him, borrowings are a double-edged sword. While developers can leverage and grow during good times, in bad times debt can finish off their business, he said.
He also emphasised completion of projects rather than going for new launches.
In his recommendation to the state government, Parekh mentioned that a waiver of stamp duty for a limited period just before the festive season would help in reviving demand.
“There is also a need to review the ready reckoner rates on a periodic basis. And allow staggered payments on levies if you want developers to come back. If this is not done, no one would be able to pay,” he said.
Speaking on his suggestions to the Reserve Bank of India, Parekh stated that the apex bank needs to take measures like buying commercial paper from the private sector directly.
“I also suggest a one-time loan restructuring and increasing the working (capital) cycle to 180 days from the present 90 days. Else this will result in a larger number of defaults and NPAs (non-performing assets) in the system,” he pointed out.
Parekh stated that compared with other countries, India is in a much better state. “In the G20 nations, only three countries, India, China, and Indonesia, are expected to have a positive growth of one to two per cent this year. The rest 17 are going to witness negative returns,” he said.
Parekh also re-iterated the fact that the country could witness a current account surplus due to the drop in crude oil prices. “With the prices dropping to just $25-30 per barrel, India could benefit the most as almost 80-85% of our oil requirements are imported,” he said.