HDFC Chairman Deepak Parekh on Tuesday said real estate prices in the country would drop by up to 20 per cent in the coming days due to COVID-19 outbreak and the resultant lockdown. For potential future home buyers, who have job security or cash flows, it will be an excellent opportunity to buy properties at lower price, he said.
"Prices of real estate have to come down, and will come down. I believe Naredco's estimate is around 10-15 per cent. One must be prepared for even 20 per cent," said Parekh while addressing real estate developers at a webinar organised by the National Real Estate Development Council (Naredco).
Parekh advised developers to reduce their leverage in the current uncertain situation and focus on completing projects rather than starting new ones now. "Leveraged borrowing is a double-edged sword. In boom times, it amplifies your profits. In bad times, it destroys you. So be careful of the perils of leverage," he said.
On market outlook, he said that the next six months would be very tough but demand would not collapse completely. He suggested developers to focus on compact apartment size as they are easier to sell.
Parekh has outlined a list of suggestions it hopes the state government, regulator Reserve Bank of India and developer community will look at to mitigate the adverse effects of the crisis on the real estate sector.
For State Government
- Need to incentivise migrant workers to return to work as soon as possible.
- Consider waiver of stamp duty and registration charges to encourage demand during the festive season of September-October.
- Review ready reckoner rates more frequently than what is currently done.
- Allow a staggered or deferred pay-out for land and related charges like Transferable development rights (TDR), urban land ceiling (ULC), etc. as no one will be able to pay at once.
For Reserve Bank of India
- Enable effective transmission of monetary policy to pass on rate cut benefits to borrowers.
- Direct banks to shed risk aversion and lend to real estate sector.
- Need to directly purchase corporate bonds and commercial papers to maintain liquidity in the system.
- Consider one-time restructuring for the real estate sector.
- Enter into renegotiations with borrowers before they invoke force majeure.
- Shift Non-performing asset (NPA) recognition cycle to 180 days from 90 days for a period of 3-6 months.
- Offload inventory at lower prices to ensure liquidity.
- Leverage long term relationships with lenders to guide them through crisis times.
- Use moratorium only after assessing the long-term strategy and capability.
- Focus on completion of existing projects, rather than pushing new launches.
- Enhance equity cushion at whatever price as it will help the company in the long term.
- Enter into partnerships with large corporates through joint development and development manager model.
- Raise standard on corporate governance and transparency. Credibility will boost sales.
- Take home less salary this year, and retain earnings in the busines.
By Chitranjan Kumar with inputs from Edelweiss Professional Investor Research