According to Prestige Group’s Irfan Razack, low interest rates and stricter regulations are driving buyers to invest in real estate during the pandemic.
Interest rates are at their lowest cycle and customers are confident that if something goes wrong, a regulator is there to take care of them, said Razack, chairman and chief executive of Prestige Group. “Several people are upgrading from a smaller house to a large house and we see first-timers committing to a purchase.”
India rolled out the stricter Real Estate Regulation Act in 2017 that protects home buyers from mis-selling and delays.
Sales fell during local lockdowns to contain the second wave of Covid-19, but sentiment is helping the upcycle, Razack told BloombergQuint’s Niraj Shah in an interview.
The pandemic has led to consolidation in the sector, he said. “We’ve seen a lot of movement towards players who have performed in the past. Those who were consistent are now reaping the rewards.”
Developers with a good track record will see “good growth” in the next one to two years as demand picks up, he said.
However, the costs are rising. “All input prices have gone up. Steel, cement, wires, transformers, PVC windows, glass – everything has gone up,” Razack said. “It has pushed up costs and has to constantly monitor budgets.”
Commodity inflation will eventually push house prices up, he said. “We can’t change what we’ve already sold. To average the margins, we need to increase costs in future sales,” he said. “But it’s a balancing act. We can’t raise it too much, and then remain acceptable.”
‘GST aid, moratorium needed’
Previously, according to Razack, developers were allowed to offset taxes paid on inputs from the goods and services tax. But since pretax relief is now available, costs have increased by 18%, he said.
Recognizing that the government has lowered the GST to 5% from 12% on residential properties and 1% from 8% on the affordable housing segment, Razack has what they need concessions on input costs. “Building luxury, premium and affordable homes all cost the same.”
While real estate is a state subject, the Reserve Bank and Treasury Department can help developers “take it easy” and set a two- to six-month moratorium, making debt service easier. “This will help manage cash flow.”