Deepak Parekh, Chairman of mortgage lender Housing Development Finance Corporation (HDFC), on Tuesday said the real estate prices in the country would correct by up to 20 per cent in the wake of coronavirus pandemic and the resultant nationwide lockdown.
“Prices of real estate have to come down, and will come down,” Parekh said in an address to real estate developers at a webinar organised by the National Real Estate Development Council (Naredco). “I believe Naredco’s estimate is around 10-15 per cent. One must be prepared for even 20 per cent,” he added.
For potential home buyers, who have job security or cash flows, it will be an excellent buying opportunity, he said. “Real estate is an immensely important asset class, and the value of global real estate was more than the value of all the stocks and bonds combined,” he said.
Deepak Parekh said Indian real estate market was already going through prolonged pain for various reasons such as economic stress in certain segments, high leverage, tight liquidity and rising non-performing assets (NPAs) in construction finance.”The irony is that while the government announced incentives for affordable housing by various means, they coincided with the world’s deepest crisis,” Parekh said.
The global economic slowdown coupled with coronavirus pandemic is likely to negatively impact residential real estate demand in the country this year.
According to the rating agency India Ratings, residential real estate demand is expected to decline in financial year 2019-20 (FY20) after showing a slight improvement over FY2017-2019.
Parekh warned developers against high leverage, and said it is going to work as a double-edged sword. “In good times, it amplifies your profits. In bad times, it destroys you. Be careful of the perils of leverage,” he said.
He also advised developers to use the moratorium as the last resort, as it would just mean pushing the can down the road. He advised them to resort to equity for fund raising even though it would mean dilution of valuation and ownership. “Enhance the equity cushion. You need a higher cushion of equity,” he said.
The industry veteran also asked the developers to focus on completing existing projects, rather than launching new ones. “Take home less money, keep the money in the company. Cut your home-running expenses. Be a little more stingy in your expenses,” he said.
On the state of the world economy, he said it never shrunk so quickly before.
Parekh expects global economy to shrink by 2 per cent in 2020 due to Covid– 19 Pandemic. Among G20 countries, he sees only three – India, China and Indonesia — to have a positive growth.
On the stock market, he is of the opinion that Indian equity hasn’t marked a bottom yet.
For the year to date, benchmark equity indices Sensex and Nifty have shed 25.61 per cent and 26.09 per cent, respectively, as coronavirus spread across the globe, leading to a flight to safety.
According to Parekh, one need not be gloomy about Indian macroeconomic scenario.
“First, we have enough foreign reserves. India is one of the top countries receiving foreign funds from NRIs. This helps to balance our currency. The currency risk is less because we get so much inflow. Second, India is not a manufacturing-based country. We are service-based economy. Certain services have been impacted, but IT, call centres, banks, online services etc. are working to some extent,” he said.
He also pointed that India had the third-largest base of startups.
“I have lots of confidence that these startups will perform well and come up with unique solutions. They have a future with great possibilities,” he added.
(Source: Economic Times)
