Rising interest rates, prices hurt real estate demand: Hiranandani Group MD

The Indian real estate sector witnessed a decline in affordable housing launches and overall sales in the September quarter of 2024. Niranjan Hiranandani, managing director Hiranandani Group, in an interview in Mumbai with Prachi Pisal, spoke about the sector's prospects and the group's plans to launch a real estate investment trust (Reit) to raise funds. Edited excerpts:

 

Launches in the affordable segment have declined in the last few years, and at the same time, a recent survey stated that about half the buyers aren’t happy with the current affordable housing options. What is your view on it?

 

With the GDP growing at a compound growth rate of about 7 per cent per annum, the highest in the world, aspirations of the Indians have gone up. People are moving from the affordable segment wherever there is a possibility.

 

In the last one and a half years, home loan interest rates went up from 6.5 per cent to about 8.7 per cent, causing an increase of about 20 per cent in EMIs. The affordable housing segment also has faced setbacks post-Covid due to the exhaustion of the Pradhan Mantri Awas Yojana (PMAY) Part 1 and the unavailability of the credit-linked subsidy scheme. We were hoping that with the US bringing down interest rates by 50 basis points, India would also follow a similar path as it would have helped the affordable housing sector.

 

However, the demand for affordable housing will continue to grow. As interest rates fall with the PMAY scheme resumed, affordable housing will certainly start growing. For developers, the affordable housing segment has immense potential to grow with better turnover, given fiscal stimulus and conducive macro-economics to foster. The lack of growth velocity in affordable housing is detrimental to the sector, and the industry seeks timely intervention from the government and other statutory stakeholders. It is extremely crucial to revitalise the essential market segment. 

 

How would you justify a decline in sales and launches in Q2 FY25?

 

The decline in sales and launches in Q2FY25 is not necessarily a negative sign. FY24 saw multiple project launches with a 3-4-year completion cycle, so fewer launches are likely to occur now as developers focus on existing projects. The economy may, however, be affected by factors such as rising interest rates, inflation, or changes in buyer sentiment resulting in slowdowns in some markets.

 

Although the industry has experienced a temporary dip, there is still a significant pipeline of projects under construction that will be completed in the next few years. Real estate markets are cyclical, and temporary fluctuations are part of their normal behavior.

 

Post-Covid, prices shot up by 10 to 12 per cent. What factors contributed to this rise, and in the coming days, are you expecting any moderation?

 

Strong demand has driven property prices up. While prices may continue to rise over the coming years, the economy is also projected to grow.

 

According to the Reserve Bank of India, the inflation rate is around 5 per cent. Property prices will increase by at least 5 per cent, if not more.

 

Despite the rising prices, consumer demand remains robust due to stable financing options and a fresh supply of properties. Stable home loan interest rates support consumer purchasing power, making it easier for people to invest in homes. Additionally, multiple new project launches are entering the market, which is beneficial for both the market and consumers.     

 

What is your analysis of inventory in the market?

 

As of June 2024, unsold housing stock in seven major cities stands at around 468,000 units, a 24 per cent increase from 2019. Despite higher inventory, the time to sell these properties has reduced by 31 per cent.

 

Post-Covid, there was a significant reduction in unsold inventory due to high demand for ready-to-move-in (RTMI) homes. But developers have introduced new supply to capitalise on the demand surge. Overall, the inventory is fine.  

 

How is commercial real estate gearing up as research reports indicate a recovery and growth in leasing activity?

 

In India, the commercial segment constitutes only around 20 per cent of the total real estate business, in contrast to the residential segment, which accounts for about 65 per cent. Consequently, the primary focus remains on residential real estate.

 

However, with the country's GDP on a growth trajectory, demand for commercial real estate is also on the rise. In recent years, there has been a significant influx of foreign investments in commercial properties and Reits, which predominantly hold commercial assets.

 

Post-pandemic, there has been a notable uptick in leasing activity due to the return-to-office trend. This strong leasing demand is resulting in higher rental yields, making commercial real estate an attractive investment opportunity.

 

What is your view on the expansion of Reits to the residential segment?

 

India has yet to develop its rental housing market to the same extent as its commercial real estate sector. Without establishing a robust legal rental market, investors are likely to continue favoring commercial over residential investments in the long run.

 

Introducing Reits to the residential segment would provide investors with a novel opportunity to invest in residential properties without direct ownership, thus broadening their investment horizons. Residential Reits could offer investors steady returns over the long term. Moreover, incorporating the residential segment into the Reit framework would formalise the market, benefiting both investors and developers alike. 

 

What challenges are developers facing these days? 

 

The sustained demand for residential, commercial, retail, and data center projects has resulted in increased volumes across all these asset classes. There are several challenges that hinder the growth velocity of the second largest employment-provider sector, the real estate sector. Tax burden at various levels, such as GST, municipal taxes, income taxes, or approval costs, hinders the growth of the industry. Lack of skilled laborers, the high cost of land acquisition, high raw material prices, sluggish approvals, and complex regulatory frameworks also delay project delivery.

 

What are your overall recommendations for the sector? 

 

Industry recommends rationalisation of government premiums, allow input tax credit, digitalisation of approvals, single window clearance, relief in income tax, and enhance ease of doing business to attract investment and employment.

 

What are Hiranandani Group’s plans for expansion and growth?

 

We will continue to launch new residential projects in Powai, Panvel, and Chennai. We are also actively exploring the Development Management (DM) model under the Eleva brand and are also closely evaluating multiple redevelopment opportunities.

 

The organisation is bullish on growth in industrial and logistics sectors across Chennai, Talegaon, Nashik, and MMR. We are actively seeking land acquisition in various cities across India to expand industrial and logistics footprints. We are aiming to add another 2-3 million square feet (msf) in the next year.

 

We will also be launching a Reit in the coming years. We are currently operating three data centers in Panvel, Noida, and GIFT City (Yotta G1 data center), with plans to add more locations in response to strong demand across India.