For C Shekhar Reddy, National President, Confederation of Real Estate Developers Association of India (CREDAI), the Narendra Modi Government’s push to the real estate sector is a welcome move. Recently in Kolkata to attend a realtor summit, Reddy spoke to BusinessLine about Real Estate Investment Trusts (REITs) and why the cross-subsidy model is not the right way forward. Edited excerpts:

How has the sector reacted to the steps taken by the Modi Government?

The real estate sector was struggling. But now, there have been pro-industry steps like dismantling the group of ministers or simplifying the process of obtaining approvals. Overall, we have received positive signals; with focus on growth.

What are your expectations?

There should be single or online clearances that ease the process of doing business.

People should be able to start projects quickly. May be we will see increased investor interest if the Government can take approvals and then call for bids.

Will the introduction of REITs boost investments?

Definitely. Now, the sector has a various funding options – ECBs, FDIs, REITs and so on. For sometime now we have been talking about institutional funding. But, medium and small players who did not get institutional funding, were borrowing at high interest rates.

How will REITs benefit small or retail investors?

REITs earn rental income from investment in properties like malls or retail spaces or logistics hub. This ensures fixed annual income for the investors. Small investors who cannot buy a plot or land can invest in REITs. They will be assured of a fixed tax free income.

But will investment in real estate be popular here in India?

Banks give a fixed rate of return with currency value depreciating every year. But for REITs, returns depend on the nature of the assets and market conditions. In a cycle of every seven to eight years, property values appreciate. Even if they go down in the short-term, they will move up on a long-term basis. So investing in property becomes a safe investment.

Should the funding options finally boost affordable housing?

Ideally yes. With the NPAs generated by the sector being low as compared to others, institutions will now want to fund it. There were issues like lack of clarity in the policy; both supply and demand side issues and also issues of obtaining faster approvals that led to slow off-take.

But isn’t affordable housing a failure with States like West Bengal, which once pioneered the joint sector (PPP) housing projects, now looking to exit such partnerships?

I will not say that affordable housing is a failure. But, the concept of inclusive development has not clicked; mainly owing to difference in socio-economic conditions of the people.

The concept to sell homes to low income group (LIG) or the economically weaker sections (EWS) strata was welcome. But the Government can’t ask developers to mandatorily sell it to these LIG or EWS people. It won’t work.

Are you saying that the cross-subsidy concept led to the failure of the segment?

If you see the cross-subsidy model (where LIG and EWS housing is subsidised by middle income group and high income group offerings followed in West Bengal), the developer never paid out of his pocket. The middle class actually subsidised the LIG component of the project. That was not fair.

In joint ventures — between real estate developers and the Government — the developer should be allowed to sell his part at market rates. And, the Government can do whatever it wants to do with its share.

Has the demand for commercial real estate increased in recent times?

Unless there is employment who will invest in commercial real estate? Commercial real estate depends mostly on IT, services, manufacturing and financial sectors. These are the sectors that generate employment and if they flourish then we will see the commercial real estate — office and retail — do well.

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