In this interview, Pavan K. Gupta is in conversation with Rajat Mishra. He is discussing whether the steps taken by the government to revive the sagging real estate sector are enough or not.
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00:00 Hello and welcome you are watching Outlook Money Interviews and in this brand new episode
00:04 of Outlook Money Interview we are delighted to be joined by Mr. Pawan Kumar Gupta who
00:08 is the Chief Executive Officer of Muthur Housing Finance.
00:11 So thanks Mr. Pawan for joining us and talking to us.
00:14 So before I come to subject specific issue I would like to put an oral question to you.
00:18 Do you think that the crisis in the real estate sector is ending anytime soon?
00:25 The various initiatives which have been taken by the government, be it in the budget or
00:31 even there have been many many announcements post budget, I feel that this is a step in
00:37 the right direction.
00:38 Will it end soon?
00:41 It doesn't look so but I think it will start, the recovery process will start unless and
00:47 until something again major disruption happens.
00:51 I will not say they are enough but there are plenty of them.
00:55 So this will be an ongoing process wherein as time passes as there are learnings which
01:05 industry shares with the government and government has been very proactive in at least listening
01:10 to the feedback from the industry and taking the necessary steps whichever are possible
01:16 to be taken.
01:18 So amidst the ongoing economic downturn, how do you gauge the downturn in the real estate
01:22 sector in general and housing sector in specific?
01:27 So it goes without saying that there has been a downturn and it is not necessarily specific
01:34 to real estate.
01:35 If we see the GDP for the quarter ending June came down to 6 year low of 5% and so that
01:47 is a clear indication of the overall economy going down.
01:52 However, real estate is something which is a part of the whole system and the last few
01:59 quarters we have obviously seen things slowing down and slowing down for various reasons.
02:07 Economic activity did have an impact apart from that there were other reasons also like
02:12 the liquidity crisis which probably aggravated the challenges on the real estate.
02:19 So there are also allegations of the government that various disruptions introduced by the
02:22 government like demonetization, GST, real estate regulatory authority that came into
02:27 play.
02:28 These all disruptions that somewhere halted the operation of the real estate sector and
02:32 that is the reason that real estate sector faced a huge liquidity squeeze.
02:36 So do we agree with this fact and what would be your comment on that?
02:41 So I would put it this way that these were all bold steps which were taken by the government
02:47 at least we have to appreciate that these really required a lot of guts to take these
02:55 decisions.
02:56 It is very tough to time anything and these bold steps which were taken any point of time
03:05 whenever you implement it, they will cause disruption because India in a way was used
03:11 to working in a certain way, lot of informal stuff was happening.
03:17 All these steps which have been taken will benefit the country in the longer run and
03:24 will get formalization of the economy which was really needed for the country because
03:31 the way we were going about and with the country growing the way we are, one of the fastest
03:38 growing economies in the world with a large population that could have caused its own
03:44 set of problems.
03:45 So whether it was to be done now or whether it was to be done later on, any which way
03:50 that was going to create certain disruptions.
03:54 So it is better that you start of something which is inevitable to be done at some point
04:00 of time and face the consequences right now and of course as I mentioned earlier it goes
04:08 without saying in the longer run will definitely benefit not only the economy, it will benefit
04:14 the common man, the individuals.
04:17 For example, RERA coming in, confidence of the people will go up while taking a buying
04:23 decision.
04:24 And second, my next question is that we have seen that firstly we were facing a liquidity
04:29 squeeze problem.
04:31 Now many experts are of this opinion that we are facing a spending problem, that people
04:35 are not willing to spend.
04:37 So it is a sentimental problem.
04:39 So what do you think in collaboration with the government, what the real estate sector
04:42 players can take actions to boost the sentiment of the consumers or the people?
04:51 So you are right, real estate because of the decisions of demonetization or GST did have
05:00 an impact on the whole value chain and with the RERA coming in, and this got coupled with
05:16 the fact that there was an overall slowdown not only in India but in the global economy
05:21 also right.
05:22 So we are no more in a situation where we can get ourselves isolated from the global
05:28 economy with the trade war between US, China and if you see close to 90% of the economies
05:37 across the world are facing a slowdown.
05:40 Even if you see recently the GDP forecast for the world was reduced from 3.223.
05:46 So all these things coupled with what happened in India led to real estate also getting affected.
05:58 Apart from that, I think the liquidity crisis which happened also played a significant role
06:04 in the real estate getting a hit.
06:07 So if you see the builders were falling short of money, they were not able to get project
06:14 funding, the sales for the under construction property was really struggling.
06:22 Apart from that, the disbursements of some of the cases which were already sold were
06:29 partly disbursed.
06:30 They also got hold up because of some of the companies not disbursing the subsequent disbursement.
06:38 All these things led to a situation where the intention of the builder may be very good
06:43 but he is not able to complete the project.
06:46 This all has resulted in a situation wherein the investors or the consumers confidence
06:53 in buying an under construction property is really shaken up.
06:57 So a person does not want to really buy an under construction property.
07:03 So right now whatever the transactions are happening on the real estate side are primarily
07:08 end user driven and I think it will take some time for the investor confidence to come back
07:20 because the property prices are not appreciating at the moment.
07:22 It doesn't look also that in the short term they will appreciate.
07:28 So this will have a direct correlation on the overall economic situation and when the
07:33 economy starts growing and lot of corrections which was to happen in the real estate side
07:43 is already underway.
07:44 So this will also come to an end at some point of time and I am sure by that time the economy
07:49 also would start looking up and both ports together should get back real estate on track.
07:56 So let us talk about affordable housing.
07:57 When we talk about affordable housing, this government claims that they have made huge
08:02 strides in this direction.
08:03 So would you be agree on that fact that like the scenario of affordable housing in India?
08:09 See this affordable housing as a terminology only became more relevant after housing for
08:19 all was announced by Prime Minister, housing for all by 2022 was announced by the Prime
08:25 Minister in 2050.
08:29 It goes without saying that the housing shortage in India is huge and when we say housing shortage
08:35 it also factors in that presently the people are living in very very bad conditions and
08:45 in order to meet up this demand, it started off in 2015, lot of policies, lot of implementation
08:53 happened and being such a large country it takes some time to really kick off.
08:58 So I would say that it took some time to kick off and now affordable housing is in the radar
09:06 of everybody, right?
09:08 Be it big builders, be it small builders.
09:10 So with this, earlier the problem was on the supply side when this scheme started.
09:16 There were not many projects around where people could buy because affordability was
09:22 not there, right?
09:23 So it started off with small builders getting into this affordable housing where they started
09:29 constructing projects in the peripheries of the town and making the unit size smaller
09:35 so that people can afford it and subsequently the bigger builders also jumped into the frame.
09:43 This was supported with the CLSS scheme under PMAY and again I would say that took some
09:50 time for people to understand, even the institutions to understand and I would say in the last
09:56 one-and-a-half year now it is well understood, people are also well aware about it and people
10:02 are, because when we do the financing now we see that people are asking for it, right?
10:07 Of course, as an organization we always had been doing that any customer who is eligible
10:13 for it, even if he knows or doesn't know, right?
10:17 We at Muthuthousing used to tell him that, "Okay, you are eligible for this CLSS scheme
10:23 so we will forward your proposal to NHP for the subsidy claim."
10:30 So that has helped.
10:31 There is construction-linked beneficiary scheme which generally does not get talked about,
10:39 right?
10:40 And I have seen in smaller towns and cities people making good availment of it where they
10:45 get up to one-and-a-half lakh rupees of loan for constructing their own house.
10:51 So all these things have led to a significant supply of the affordable houses.
11:03 Even in bigger cities you see the sizes of the flats have started shrinking, right?
11:10 And I would say that was primarily to fit in into the government various initiatives
11:17 of availing the tax benefit and also making it affordable for the people, right?
11:22 So earlier the trend was of bigger flats, now that has started coming down.
11:27 So all these things are things in a positive sign and you see in the last few years a lot
11:34 of affordable housing finance companies have started coming in, right?
11:38 So and these all affordable housing finance companies cater to the customer which are
11:44 not catered by the normal banking channel because they do not probably have a formal
11:49 income proof, right?
11:51 So that is one big thing which has started happening and this particular affordable segment
11:58 where people do not have a formal income proof has been going very, very fast compared to
12:05 the normal housing scheme.
12:08 So of course this got a little hit because of the liquidity crunch, right?
12:14 So this got aggravated, had this not happened I think we would have been in a different
12:20 scenario as far as the affordable housing is concerned.
12:23 And recently government allocated 25,000 crore as an alternative investment fund.
12:28 Do you think that this fund is enough to spur the completion of stalled projects in India?
12:34 So my perspective is that things right now had come to a standstill, right?
12:44 And liquidity was a big problem for these builders.
12:46 They had let us say some project is completed up to 90% and for the reasons I mentioned
12:52 earlier the cash flows were not coming in and because of that the project got stalled,
12:57 right?
12:58 And they were not seeing any signs of any funds coming in from any sources.
13:03 So at least with the creation of this fund, one thing is there are a lot of inventory
13:09 which probably is in a very advanced state of construction where the money is blocked,
13:15 right?
13:16 Will at least free up those units from the stalled project category, people will get
13:23 their home, banks will start getting their repayment, right?
13:27 And this has a very cascading effect not only in this, it will generate a huge amount of
13:32 employment in the real estate and also various ancillary units which are associated.
13:37 So I would say that this would be 5x of what the amount is.
13:43 And over and above it is not that it is restricted to 25,000 crore, right?
13:48 This amount can go up and somehow I am very confident considering the potential what it
13:55 is and the number of sovereign funds can invest, pension fund can invest, domestic financial
14:02 institutions can invest, right?
14:03 And it makes good business proposition also for them.
14:07 So I see that this is a great step and this fund could get bigger and bigger with every
14:13 passing day also.
14:14 Thank you Mr. Pawan Kumar.
14:15 Thank you for talking to us.
14:16 Thank you.
14:16 Thank you.
14:21 Thank you.
14:26 [BLANK_AUDIO]