‘Integral Changes Alone Will Help The Realty Sector To Fully Recover’: Aparna Constructions

Stress funds for stalled projects are the need of the hour, especially for the usually active realty pockets that are experiencing lull. In an interview with Sneha Sharon Mammen, Rakesh Reddy, director, Aparna Constructions and Estates Private Limited says while the alternative investment funds have come at a good time, authorities must also turn their attention to the many systematic changes required.

Edited excerpts of the interview follow:

Q: What do you think about the alternative investment fund for stalled projects?

Answer: The government’s decision to set up the Rs 25,000 crore alternative investment fund (AIF) to help stalled realty projects is a positive step towards reviving the sector. The government will invest Rs 10,000 crores into the emergency fund and the State Bank of India (SBI) along with Life Insurance Corporation (LIC) will infuse Rs 15,000 crores to the fund. The fund is expected to attract sovereign and pension funds as well in due course.

Q: How will the infusion of these funds help, in the short-term?

Answer: The emergency fund has come at a time when the sector has been grappling with a liquidity crunch. In 2018, after IL&FS defaulted on loan payments, the non-banking financial companies including housing finance companies, which were the key source of funds for realty projects, crippled. The IL&FS crash led to the stalling of projects across cities. In fact, currently, there are around 5.76 lakh incomplete units across the top seven Indian cities, with Mumbai and Delhi together having around 4 lakh units. An approximate value of Rs 4, 64,300 crore of unfinished projects are there in the top seven cities. Adding to this is the overall contraction in demand that the sector witnessed in 2018-19. The infusion of the fund will ease the situation to a great extent. According to the data available, the realty sector has more than Rs 71,000 crores worth of loan to be repaid by the first half of 2020. Default in repayment could have widespread consequences with mainstream banks being affected as well. This move to provide financial support will not only help builders but also homebuyers who are awaiting completion of their homes. Importantly, the extension of aid to projects that have been stalled due to bankruptcy proceedings against the builder, is a great boon.

Q: What is crippling the real estate sector today?

Answer: Integral changes must be made for the sector to fully recover. For instance, in spite of the recent GST rationalisation, the current taxation structure for the realty estate sector isn’t efficient and can perform better if it’s streamlined to all aspects of the sector. Another area that requires attention is the reduction of the GST rate on under-construction properties. While the recommendation was made with the intention of improving the sentiments and thereby, giving demand a much-needed impetus, home buyers and realty players are yet to fully benefit from the move. To have a meaningful impact, the government would need to have a holistic approach to taxation. The government should revisit the GST rates levied on the construction materials, especially, cement and other raw materials. Rationalising the GST rates of these commodities will bring down the burden of construction cost and the overall pricing.

Q: What suggestions would you give the authorities that will help homebuyers and developers?

Answer: Bringing about a revision in the income tax slab can be beneficial. This will enhance the ability of the salaried class to invest in real estate. Expanding the income tax deductions offered to home buyers can also incentivise new buyers and widen the market opportunity.

Streamlining the approval process by adopting a single-window clearance will give the sector the much-needed boost. This will ensure project approvals being processed more quickly, resulting in reduced construction costs, thereby substantially reducing property costs. Granting industry status to the sector would be a game-changer. Affordable housing is the biggest testimony of how it can positively impact a sector.

Granting infrastructure status to affordable housing has resulted in many reputed builders entering the segment and launching projects in the category. The realty sector is a strong contributor to India’s growth and is the second-highest employer. The contribution of this sector is estimated to grow at a rate of 30 per cent CAGR in the next ten years and will approximately generate revenues worth $180 billion by 2020.

The government has made the right move with the emergency fund. However, the sector needs more reforms that will lower the costs for builders and bolster momentum.