If a stable government comes to power at the Centre, the sentiment will improve. However, for prices to come down, it must provide infrastructure on new land parcels, says Anuj Puri, in an interview with ET.

Do you expect the slowdown in real estate to end after the general elections?

Anuj Puri: If we have a stable and business-friendly government, the sentiment may improve very quickly. Subsequently, there will be growth in the residential segment. People have the money, but due to poor sentiments they are not willing to spend on home purchases. However, the sector’s fundamentals may take longer to change. I also see corporates taking up more office space on lease and private equity returning to the country due to a stable rupee and on the expectations of better governance.

High prices, high interest rates and slow salary growth have affected affordability. Will this issue be resolved soon?

Anuj Puri: This will remain a challenge. In tier I cities, land accounts for 50-60% of the total project cost. Unless the government provides infrastructure and opens up new land parcels for development, property prices will not come down. In cities such as Hyderabad, Ahmedabad and Greater Noida, where infrastructure is good, residential prices are reasonable. The prices remain high in cities like Mumbai, where infrastructure is poor.

What are the problems in the New Land Acquisition, Rehabilitation and Resettlement Act in its current shape?

Anuj Puri: Almost 70% of the legislation is okay. The trouble lies more with its implementation, which is painfully slow.

How will it affect land acquisition by private developers?

Anuj Puri: It will affect the price at which land is acquired. Consequently, it will also impact the pricing of the end product.

Will the new bill make land acquisition more time-consuming due to red tape?

Anuj Puri: This holds true for places where large land parcels have to be acquired and bureaucratic sanctions are needed. However, some cities like Bangalore and Kolkata, and some of the tier II towns like Patna are more progressive and it is easier to get approvals there. In other places, such as Mumbai, there is a lot of red tape and getting approvals takes longer.

Does the new bill require reforms?

Anuj Puri: The bill will make land acquisition more expensive. However, it will impact the real estate sector much less compared to the industry. Setting up a manufacturing unit in India will become more expensive and, as a result, it will affect its competitiveness vis-a-vis China. Real Estate Regulation Bill partly draconian: Anuj Puri, JLL India

Is it true that the provisions of the bill apply to developers, who are trying to build large townships?

Anuj Puri: Yes, it is true, but it is rare for real estate developers to pick up large land parcels from farmers. They usually buy land from corporates that want to relocate. The industry acquires land directly from farmers more than the real estate community. So, the impact will be more on manufacturing.

What changes are required in the foreign direct investment policy for India’s real estate sector to attract more FDI?

Anuj Puri: At present, foreign investors are allowed to buy only completed buildings in special economic zones (SEZs). Most of the foreign investors who want to come to India want to put their money in less risky investments. This will be possible only if they can buy completed and occupied assets. If the rules were to be liberalised, allowing foreign investors to buy such assets even in non-SEZ areas, say, retail malls and commercial buildings, we would see a lot of sovereign funds investing in India. Secondly, there is a lock-in period of three years for FDI investments. Each tranche of money that comes in cannot be taken out until it has completed three years. Finally, the FDI money can only be invested in developments that are at least 550,000 sq ft in size. Such large developments are usually not available within the city limits. Some of these rules need to be liberalised.

What are the advantages of the draft Real Estate Regulation and Development Bill?

Anuj Puri: It is a good bill. It will hit hard the fly-bynight operators, who follow unethical practices. However, some of its clauses are draconian. For instance, if a developer doesn’t comply with some rules, he could be put in jail. It would be more prudent to punish an economic offence with a penalty rather than treat it at par with a criminal offence. Clearly, the bill benefits the customer. It puts the onus on developers and financial institutions that give construction loans. However, the third stake-holder, the government authorities who give approvals for projects, has not been held liable for delays in giving approvals. The bill says that if the project gets delayed, the authorities can take its possession and hand it over to someone else to deliver the balance. If the government delays approvals, it would be unfair to punish the developer. It, too, should have been held accountable.

How will real estate investment trusts benefit the retail investor?

Anuj Puri: At present, the retail investor cannot put money in real estate with a small amount, say, Rs. 5 lakh. He needs to buy a house or a small office or shop, which costs quite a lot. He can invest in the shares of listed developers, but those haven’t been performing well for the past few years. The only way that he can play for the upside in real estate with a small sum is via REITs. These trusts are transparent as well as liquid.

How soon can one expect REITs in India?

Anuj Puri: A few tax advantages have to be given to REITs, which can only be done through a Budget session of the Parliament. I think the new government will take up REITs in Budget 2015.

Source: ET

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