While the budget focuses on promoting infrastructure and affordable housing, the middle class has been left behind, says Niranjan Hiranandani, co-founder and managing director of the Hiranandani Group and vice president of NAREDCO. In an interview with B. businessLine, The 71-year-old Indian billionaire pointed out that institutional investors’ interest in real estate, especially new asset classes, was increasing and the state of data center infrastructure would further push the sector’s growth. Excerpts:
1. Would you say the budget neglected some of the real estate industry’s long-standing demands?
In a sense yes. But then, there is no major fiscal implication on the sector. So no bad news is good news for us. However, we hope that the GST Board will consider extending the benefits of the input tax credit to developers.
2. Has Prime Minister Awas Yojana (PMAY) lived up to expectations?
Nearly ₹80,000 crore has been allocated under PMAY-Urban and PMAY-Rural in the last five years. Executing a project of this magnitude will always be a problem here. But PMAY-Rural has done really well despite the Covid-induced downturn over the past few years. It is PMAY-Urban that faces some problems, especially considering the larger metros – Delhi, Mumbai and Chennai.
Slum development projects are an issue here, including property issues. There is therefore naturally a slowdown in the big cities. Additionally, migration has occurred (during the pandemic) to smaller towns, thus slowing down the program. But the same PMAY (urban) performed well in the outskirts of metros, Tier I and Tier II cities, and in large urban hinterland areas.
3. Do you expect the budget to stimulate demand in the real estate sector?
Infra aside, there is a clear objective in increasing the allocation of funds to the PMAY program – both the urban and rural segments. Even without the budgetary provisions, real estate demand improved after the Covid. Affordable housing, the upgrade market and high-end homes are doing well. The supply situation in the cities has also stabilized. Demand is expected to be strong in the coming year if factors such as the low interest rate regime and stamp duty reductions continue. 4 . But is a low interest rate regime a long-term possibility?
The RBI’s monetary policy committee maintained the status quo on key rates on Feb. 10 while maintaining a “dovish” stance. This reflects on their consistency. For the buyer, the favorable market dynamics in terms of interest rates for real estate loans continues. However, trends indicate that this “historic low” may not last long. 5 . What do you think of the demand for alternative asset classes?
Warehousing, industrial and commercial real estate are in good demand and the appetite for institutional investment is visible. Homes/Real Estate are also driving high queries. The market has consolidated and many developers are cleaning up the books, which has revived investor interest.
India continues to offer attractive double-digit returns (for property investors) through alternative asset classes, compared to the Western world which has now fallen to mid to low figures. However, this does not include large REIT markets like Singapore.
The budget also granted infrastructure status to data centers, which will make low-cost funding available. Considering the increased data penetration and data localization policy in India, data centers are also emerging as a relatively low cost and high return model. This sector will also see increased interest from foreign investors and significant investment from Indian players like us (Hiranandanis). Some landlocked states will also become attractive destinations.
6. Does this mean you will consider raising capital in the market?
On REITs, there is nothing immediately. Maybe two to three years later, as the market matures, we can consider it. It could also be the registration of a branch of the group.
7. What do you think of the budget?
The budget takes a long-term view by announcing capital expenditures. Road construction improved to 35 km per day from 5 km per day previously; focus is on affordable housing through Prime Minister Awas Yojana (PMAY) with an expenditure of ₹48,000 crore; one-crore homes are expected to arrive in one to two years. So, the infra push will see a multiplier effect across 260 industries. Then there are tPLI programs that should boost manufacturing. On the negative side, the middle class has been missed.
There is no tax relief regardless of income bracket. The income tax rate in the highest brackets is 42%; against which corporate tax rates are lower. Similarly, we were hoping that the tax deduction limits on interest on home loans would be raised to ₹5,00,000 (from the existing ₹2,00,000). This could have given a boost to the real estate sector. Proponents also expected the benefits of the input tax credit to be passed on. This too. did not happen.
A MNREGA-type or income guarantee scheme for the urban poor, who make up almost 45% of the (urban) population, could have helped stimulate demand. To assume that all economically weaker sections or migrants would return to the villages to enjoy the benefits of MNREGA is a bit out of line.
February 11, 2022