The new regulatory changes and the changing market dynamics, will not adversely challenge the end-user driven markets, says Ashish R Puravankara, managing director of Puravankara Limited. In an exclusive interview with Housing News, Puravankara says that regulatory changes like the RERA, GST and demonetisation, will lead to industry consolidation soon, making it the right time to invest in technology and affordable housing.
Q: How are you coping with the market slowdown?
A: Demonetisation, the Real Estate (Regulation and Development) Act (RERA) and the Goods and Services Tax (GST), have all had their own repercussions on the real estate industry. The announcement of demonetisation created a disruption in the market that largely impacted buyers’ sentiments. Subsequently, the rollout of RERA and GST followed, which made the buyers tread cautiously with their investments and spending. We believe that these government initiatives will pave the way towards transparency, accountability and efficiency in the real estate ecosystem, in the long term.
Q: To what extent has it affected your top line and bottom line?
A: It has not impacted us much. In the initial phase, there was a slight stagnation in sales, due to the overall slowdown and uncertainty among the buyers. However, once things started settling down, there was a spike in the customers’ enquiries for our projects. Out of these queries, many were converted to sales. A large credit for this goes to our focused fiscal planning and preparedness for the structural economic reforms.
Q: What have been the learnings for the real estate sector, from the last five years of market uncertainties?
A: The dynamics of the sector have changed completely. The advent of multiple policies and the regulation of the real estate industry, have resulted in a paradigm shift, with systemic checks and streamlined process. With the IT revolution, there has been a significant rise in job opportunities, which has been furthered fuelled by the emergence of e-commerce and the start-up culture. This has led to a significant increase in the white-collar migratory population, especially in the metropolitan regions. These demographic transitions have also pushed demand for homes in these cities. However, after the initial rush, the residential sector witnessed a slight stagnation in the last two years. Realising the undercurrent, several developers have seen value by diversifying their offerings and venturing into the affordable housing segment.
Q: What have been the after effects of demonetisation on the sector?
A: Demonetisation has impacted sentiments in the residential market. New launches, sales and enquiries, dipped a little during the initial phase of demonetisation. The impact was particularly hard, in markets that were dominated by investors. However, southern markets, especially Bengaluru, which is primarily driven by end-users and has steady economic activity and a high percentage of the white collar migratory population, remain stable in comparison to other key markets. In fact, after the initial lull, Bengaluru’s real estate market witnessed renewed consumer confidence in the quarter of January –March 2017.
Q: How about RERA and GST affecting the business cycle?
A: As with the implementation of any new policy, there will be some teething issues but the long-term outlook is positive. RERA will not only bring back confidence among end-users but will also give the customers better clarity, to take informed decisions to buy homes that they desire. For developers, we need to adapt to the new environment. RERA will be a game-changer for the overall industry, which will eventually translate into growing customer and investor confidence.
The role of GST for the Indian real estate sector will be that of an enabler, as it will create a level playing field for all organised developers in the country. There are multiple benefits for developers and home buyers, with the implementation of GST. A single consolidated tax system brings more transparency and avoids double taxation, which is relevant in a sector where developers and end-users end up paying multiple taxes and duties.
Q: How is GST affecting the supply chain of real estate?
A: Inefficiencies in the supply chain will slowly decline, resulting in prudent working capital management and better pricing power, for all stakeholders in the value chain. Specifically, the impact of taxes on construction materials, cement and steel will come down considerably for developers, which ranges between 12-18%. With the rates in place now, the implementation of GST is expected to bring down the project cost for developers, thereby, leading to lower acquisition cost for under-construction apartments.
Q: How have consumers reacted to these policy changes?
A: RERA has now put the buyer in the driver’s seat, as exhaustive data that is ratified by the regulatory body will be available at the click of a button. The confusion and any allied fears that a potential customer could have, will now abate. There will be certainty of project completion and most importantly, peace of mind. With enhanced transparency, customers’ confidence will only increase.
Q: Which are the segments that you feel are safe bets?
A: The affordable housing segment will gain momentum. We are investing significantly in our premium affordable housing arm – Provident. In the next couple of quarters, we will launching new properties in existing markets, under this brand. The government’s grant of infrastructure status to affordable housing projects, has given the needed impetus to the real estate industry.
Q: What would be the next growth driver in real estate?
A: With the rollout of RERA, the real estate market will witness consolidation in the next two to three years. Only serious and focused real estate players will survive. With new launches slowing down, this is a great opportunity for us to invest in technology, which will be the next growth driver in real estate.
(The writer is CEO, Track2Realty)