In a chat with ET Now at ETMarkets pre-budget meet, Niranjan Hiranandani, Co-Founder & MD, Hiranandani Group, says the government does not want the real estate prices to come down. Edited excerpts:
Costs are reasonable but one industry where many people do not believe that costs are reasonable or prices are reasonable is probably real estate. There has been a lot of talk about how real estate prices are going to crash and they are going to come down ever since demonetisation but not much of downward price movement seems to have happened at least across the board. Do you think prices are going to come down in real estate?
First of all, government does not want it to come down.
They do not want it to come down?
No, because all the steps taken by government shows the opposite direction. For instance, the ready reckoner rate or the circle rates all over the country have gone up and they go up 10%-15% compounded every year. Last year, there was some resistance so they brought it slightly down but otherwise they continue to raise it.
In the Income Tax Act, if you do not sell the property at the price of the ready reckoner rate, then you are charged additional tax. So if you bring down the prices, you still have to pay the difference between the ready reckoner rate and that part. Third, the government collects revenue based on the ready reckoner rates which is constantly increased so the construction tax, the local municipal tax, the TDR rates, the other rates are all adjusted in accordance with that. So it is not in the interest of the government to reduce rates.
Just now they decided to increase the FSI for Mumbai and they increased the FSI rate to such an extent that if you take the FSI from the government and build houses, you cannot sell anywhere in Mumbai at less than Rs 10,000 even if it is Borivali or Mulund. Second, the land acquisition act has actually increased the acquisition rate two times the ready reckoner rate in urban areas and four times in rural areas.
What has happened is that the government acquisition rate has brought up the rate and nobody wants to sell it now at less than what the government is acquiring it for. Basically, what has happened is that the government is in a catch 22 situation wherein they are using the higher price of land as the revenue model. The government is selling plots also at the higher prices in MMRDA, CIDCO and other places and still be able to do it.
I do not think yet they are clear as to how to really do this. They are moving further into the hinterland where the infrastructure is coming up in a very positive manner and that is a good thing. But as far as the city itself is concerned and Mumbai in particular, the statements may be positive but the steps taken are still backward, actually reversed.
That is bad news for the resilient Indian consumer. If real estate prices are not going to come down, how many people are going to buy houses? How many home loans are going to be taken?
Let us be fair to the government and give the other view. What they have done is improved the urban infrastructure — metro cities, smart cities. Metro will double the railway lines in Mumbai in the next five years. You are going to have a cross harbour bridge. You are going to improve the railway lines in terms of eastern, western. You are going to put up the Navi Mumbai Airport. You are increasing the MMR region so the peripheral areas of Mumbai and the metropolitan is certainly going to be an opportunity. But if you are talking about reducing the prices in the city and other centres and all that, it is out of question.
One of the things that has always been little surprising or probably mysterious about the real estate sector and also the banking and the HFC and the NBFC lending to the sector is that you see that every quarter on quarter, year on year the home finance companies do very well. They are growing their loan book by about 15-20%. In some cases, some of the private and public sector banks are also doing it but we have this whole talk about how the real estate sector is down in the dumps and it is gloomy …
One more thing to add to that. First of all, the growth of home loans have been growing at least at 15% to 20% compounded every annum. Second, the NPA in home loans is the lowest out of every sector. It is less than 2%. So when they say there is a risk profile as far as home loans is concerned, it is all lie. Home loan segment is a segment that is doing the best. NPAs are almost nil.
But where are the home loans going if people in big cities are not buying houses and prices are too high?
The average home loan of Rs 7 to 10 lakh is the highest borrowing segment. But by and large we see that home loans are definitely growing and will continue to grow and incidentally my guesstimate is that the next five years you will see a growth of 40% to 50% compounded growth per year in home loans.
Credits ET Realty