The real estate sector will take 18 to 24 months to pick up. This will be the time when consolidation will happen in the sector, with stressed developers moving out, says Anuj Puri, Chairman of property consultancy firm Anarock. Real estate as a sector is also witnessing the rise of a new set of developers who look to follow the law rather than look for loopholes. Recently in Kolkata, Puri spoke to BusinessLine about the outlook for FY19, structural changes in the sector after demonetisation, RERA and GST. Excerpts:

Give us an outlook for the housing sector for FY19?

Housing continues to be a challenging market with some cities doing better (in terms of sales). Mumbai, Pune and Bengaluru are among those seeing a recovery of sorts.

Recovery in Chennai and Noida will take time. Over the last seven quarters, across key markets, there have been more sales than new launches, which means unsold inventories are coming down. But this is also going to be the phase of consolidation in the industry.

Why this consolidation?

I think it is required. Firstly, there were too many players and a number of them were not financially disciplined and lacked corporate governance.

Then many developers were not client-centric (taking the consumer lightly) and played the game on the client’s money. They did not have proper financial closures, too.

These are the players who are now exiting. It is not about small fellows or big guys. Irrespective of the size, those who are financially indisciplined will perish.

So what led to this structural shift for the industry?

Clearly RERA is one. Now, RERA mandates that 70 per cent of the money given by a buyer be kept in an escrow account. So developers cannot re-use that money to buy another land parcel.

So money from one project cannot be used in another, as was the practice with most developers. This means that there has to be a financial closure.

Secondly, I think, the judiciary has become strict and actions gets taken faster against errant developers. Thirdly, there is the social media, which can expose errant developers.

And, all this is leading to a new breed of developers with a different mindset...

Yes. These younger developers are not looking at the sector as a mom-and-pop venture. They see it like an institutional segment or a factory which has to be productive and efficient. Gone are the days when developers could have huge margins of 30 per cent or so.

Now it is a volume-driven business with around 20 per cent margins. Delays and inefficiencies that previously benefited developers are now expensive propositions for them. Also, older developers looked for loopholes in the laws and how to use them. Now, the new generation is looking at the spirit of the law and not at short-cuts.

So with all these changes, do you see an upswing in real estate sector?

It will still take 18 to 24 months. Until the unwanted guys are weeded out, it will not pick up.

Do you feel the Centre has done enough for the industry to bring it out of this downswing?

I think the government has done enough to cleanse the industry, be it demonetisation or RERA. The government’s steps are like a surgery. The patient needs time to recover. The long-term results will be healthy.

And GST...

GST has been a dampener for real estate. It’s an expensive product, and the additional 12 per cent tax (on sale of under-construction apartments) has a big impact. Maybe the government can re-examine that.

A lot of representations have been made by the industry body Credai. The government has taken cognisance of the fact that tax concessions need to be given for affordable housing. So, tax was brought down to 8 per cent under the Pradhan Mantri Awas Yojana (PMAY) scheme. But for the rest , it still remains at 12 per cent.

Are private equity players investing in residential housing projects?

I don’t think there will be pure equity that will come up in the residential market. It is still 2-3 years away, that is, until they see the full positive impacts of RERA.

However, we will see equity come up in income generating office assets (fully let-out, complete office spaces and so on).

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