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Lalit Kumar Jain, chairman-Kumar Builders, president-Promoters Builders Association of Pune (PBAP) and vice president, Confederation of Real Estate Developers’ Associations’ of India (CREDAI), tells Rajesh Kulkarni why the realty sector needs an urgent liquidity injection if it’s to survive the ongoing recession
Lalit Kumar Jain, chairman of the Pune-based Kumar Builders is a worried man. As a leading industry player and senior office bearer of apex industry bodies like the PBAP and CREDAI, he acknowledges that the real estate industry is facing one of its worst crises ever.
“There are three primary factors responsible for this,” he says. “The ongoing recession has adversely impacted the realty market. Then the hikes in home loan interest rates strained the budget of buyers to the extent that they could no longer afford to buy what they needed. Lastly, fears of job insecurity looming large.”
According to Jain while interest rates have shown signs of softening in recent months, PBAP, on its part, is firming plans of introducing special measures to allay job-related fears of property buyers. “In case a buyer loses his job after investing in property, PBAP builder members will postpone the instalments due for that period at zero interest.”
Though we have not specified a timeframe, we have assumed this period to be around three months,” says Jain. “We are also working on a scheme with lending institutions wherein the developer will pay the EMIs on behalf of such customers for this period. Both these measures will only be applicable in genuine cases as a customer-friendly initiative by the PBAP.”
Voicing his views on the acute liquidity crunch faced by the real estate industry Jain says, “There are three aspects to this issue.
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Due to the negative market sentiments sales have almost come to a standstill. Moreover, the recoveries of committed flats have slowed down because people want to pay only on possession now.
This has created an urgent need for gap funding. We have apprised the concerned officials starting from the finance minister about this issue and they have realised there is a need to ensure an adequate supply of funds to the realty industry. Banks are sitting on cash but are hampered by a mindset which dates back to almost three years when the RBI had cautioned banks against lending to the real estate sector,” says Jain.
“As a possible solution, we have informed banks that whatever funding is provided could be put in an escrow account and all surplus money after construction costs will be returned to the banks. This will ensure that developers will not be in a position to withdraw any money before the banks are fully repaid. It has to be noted here that the real estate sector has been one of the safest from a lending perspective and has one of the lowest NPAs thus far.”
It’s only the real estate sector that can revive the next engine of economic growth and this fact has been accepted worldwide asserts Jain. He says, “What is needed is a change in mindset by banks and lending institutions. If the government intends to wait till after the elections to resolve this issue it could lead to widespread chaos not only in the industry but across the general economic spectrum.”
Jain stresses that the liquidity crunch has not just impacted developers and customers but also ancillary sectors. “Steel, cement, white collared personnel and even daily wage labourers are feeling the pressure.
This has led to even realty majors like DLF retrenching a huge number of people in the last six months.”
“There could be a second tranche of massive retrenchments in this industry very soon if gap funding is not provided,” he warns. “This could be on a far larger scale than what we have witnessed so far.”
“People are trying to survive by creating resources to complete projects,” he adds. “However even they can’t go beyond a point and if that happens, it could lead to another massive round of retrenchments. A major casualty would be the approximate 30 million daily wage labourers and 7 lakh white-collared employees working in this industry.”
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