Real Estate Market is Always Investor Friendly

Sanjay Dutt, MD & CEO, Tata Realty & Infrastructure Limited and Tata Housing Development, is a leading light of the real estate industry. A high calibre professional with rich and diverse experience, as a smart leader, Dutt is well -versed with the market pulse. In this free-wheeling interview, this industry veteran talks to  about the state of post-covid real estate, clearly highlighting challenges and prospects that lie ahead for the sector. Excerpts
Vinod Behl

Q. Despite covid setback, top 7 listed players registered 7% growth in FY20-21 over FY ’19-20 , with cumulative sale of 32.61 m sq ft housing. Now that covid pandemic has receded, how do you look at the  residential real estate performance in the current financial year?

The current financial year would end on a high note, assumption being, like the second wave of Covid 19 where economic impact was low, wave 3, if any, shall not impact economically. Overall, I expect businesses making up for the loss of Q1’21-22 in Q3 &Q4.

The next 3 years for housing are going to be  buoyant largely attributed to consolidation, lesser number of new launches( although you will see a spike in  next 2-3 years), stuck projects for want of last mile funding,  inventory coming down below 25 months, demand for larger typologys , rise in sale price due to increase in cost of construction by 15%, reduction in cost of capital for Tier 1 developers and high cost of debt for not so reputed. Though the current low EMIs for customers may be impacted  due to inflation, yet I do not see home loan rates touching double digit in the next three years.

Lot of capital stuck in land and brown field projects will get unlocked, resulting in faster turnaround for the projects. There is also appetite for private equity.

Q The trust deficit between developers and home buyers continues to be there due to large scale delivery defaults, with buyers refraining to invest in under construction projects and instead preferring ready homes. Do you see this situation changing any time soon?

This has already  changed. Just like developers who did undermine the significance of compliance and adherence to customer promise, customers also did not bother to do their due diligence. Now, they understand each other and even better understand RERA and consumer courts and the recent judgements given by various courts.

Those who have not set their development organizations in   regulatory compliance and financial discipline mode, would wind up. That’s why we call it a K shape recovery.

Q How will the Supertech case and other ongoing cases of irregularities by developers impact the nascent residential real estate recovery process?

It will restore the confidence, unlock value and stuck capital. It is not going to be easy, sacrifices would have to be made by all the stake holders but the reference points will help in future substantially.

Q While residential realty has shown a lot of resilience in facing covid challenges, commercial real estate has been badly hit. What, according to you, will be the road ahead for commercial realty?

I do not agree. In 2019, we touched 49 million sq ft of net absorption, which was the highest. The average was always around 35 million sq ft. In 2020, despite  3 % less workforce in office, 98% rent collection amongst institutional landowners, occupiers leased 26 million sq ft of space . In 2021, you will register 28 million sq ft of net absorption. “Work from home” has been replaced by “return to work”. The speculation, which was beginning to happen in commercial office real estate because of slow down in residential, has stopped. This will help organized players to do better.

Q How has been the performance of Tata Realty during Covid, both on the residential and commercial front. How is the group expected to perform in this financial year? Going forward, what are your future business and expansion plans?

We had 120% growth in residential segment in FY’20-21 while office realty saw 8% rental growth and 97% portfolio remained leased. In 2021-22, we are likely to repeat the performance.

Q Real estate developers have been facing serious capital crunch especially with regard to bank funding, thereby   impacting their growth. Do you see any improvement in the situation in the times to come?

Gradually yes. The Tier 1 developers with better ratings will benefit in terms of   lower cost of capital as well as   securing capital faster.

Q One major stumbling block in the growth of real estate has been the severe shortage of real estate professionals and skilled workers. Going forward , how do you see this problem getting resolved and what will be the role of increasing deployment of technology in this regard?

I believe shortage will always remain given the scale. But the quality of scale is the need of the hour. We will have to embrace the best of the world technologies and set higher than global standards for less cost. I believe we will achieve that over the next 3 years.

Q Currently, the market is end-user driven and investors are out. But as the investors have started shopping for good pre-leased commercial properties, when do you think the real estate market will become truly investor- friendly?

Real estate market is always investor friendly. I hope it does not become “speculator friendly”. That destroys the long-term prospects of the sector. However with cost of interest at all-time high, profit booking in stock markets, investors are keen to indulge in real estate. Second home markets are thriving and lifestyle oriented and luxury may see new heights.

• On way to real estate consolidation and recovery, those who have not set their organisations in regulatory compliance and financial discipline mode, would wind up.
• The second home markets have been thriving and lifestyle oriented and luxury real estate may see new heights.