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We Need To Work With Ethics, Adapt To Change And Need To Imbibe Technology: Hiranandani
In a conversation with BW's Chairman & Editor-in-chief BW Businessworld Dr Anurag Batra, Hiranandani touched various segments of the real estate sector.
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I believe there is no right and wrong, either it is the efficient or not efficient basis on how you perceive that situation, said Dr Niranjan Hiranandani, National President, NAREDCO during BW Dialogue organised by BW Businessworld on Leadership.
Hiranandani spoke about Indian Business and Economy, Present and Future of Real Estate and his outlook and predictions for the New Abnormal.
In a conversation with BW's Chairman & Editor-in-chief BW Businessworld Dr Anurag Batra, Hiranandani touched various segments of the real estate sector.
How has been your last 150 days for you personally and professionally?
I think one of the startling thing is that this pandemic that has happened is totally unprecedented. During this we all learnt by trial and error and obviously it requires a huge amount of strong action which our beloved Prime Minister done very well and said "Jaan ki baat pehle karein nahi to jahaan ka kya hoga" meaning (talk about health first and otherwise there is nothing about the world).
The second idea was totally confusing of opening up where the chances taken were sub optimum where different people took different sorts of situations. Unfortunately every district again did a different type of operation so we were not able to bring about the thing coming back to normal in an efficacies' way .
I believe there is no right and wrong, either it is efficient or not efficient basis on how you perceive that situation. The large number of industries and factories which have opened up have really been able to spring to New Normal. Construction industry has been very badly hit. Of course it was badly hit even earlier, post GST and bringing on GST and RERA; I support the law but it had impacted the business of the industry to a great extent.
We have the good, the bad and the ugly. I must add, the migrants were really badly hit; they were confused, they were scared and heading back to their home states. Now the reverse Migration have started where people have started moving from their home states to the states where really the work is.
Yes, this was the situation which has happened. Now we will have to look at what the present brings us and what the future will bring us and that depends on so many factors but it would be really interesting to see how the Government of India, Reserve bank of India, the states and individuals are able to tackle the situation which takes place in the market.
I had the interaction with honorable prime Minister, Finance Minister, and Chief Ministers of various states something that I would never be able to do in 150 days. I have done more than 150 meetings with all these illustrious and important people to work out solutions of the market place.
In Mumbai region I run 14 colleges and 6 schools and obviously they are most affected and felt really frustrated in the beginning. Today, every student and teacher is online and all 2,500 people involved with them are already online. It is a revolution and it also indicates that if the Government and the private sector pick up this opportunity of online education, I believe that you can teach the entire country. Online education will be the future.
When do you see Indian Business and economy to be back on the same footing what it was 18 months back?
My gut feeling, and this is a gut feeling for various reasons. I think by March of 2021 we will be completely back on track. This is provided that the vaccine doesn't come because the heard immunity built start developing and because we have seen in many various areas including terrible areas like Dharavi, there is already 36% of the people have already received immunity which means they've already gone through the Covid story and come out of it.
The second part of it which is the more of optimistic area by October or Diwali we do get a vaccine in which case we can spring back immediately even though you are not taken the vaccine your optimism will itself create furore for positive activity.
My gut feel is that the things will return to the normal by March 2021 speculated because we do have some idea because of the experience of the medical reports from hospitals and other institutions it is speculated. We don't have a confirmed date that has been given by any authority worldwide but it is just my gut feel from the experience of heard mentality being developed both in Delhi and Mumbai. I think that is the extent to which it will continue to happen and fortunately the health systems both in terms of beds and beds with oxygen and I see you have now been built enough across the country to take care of any emergency held during the COVID time.
When do you see various segments of the real estate sector reviving what are the trends in the residential market that you see across?
I'm very bullish on the residential sector in the long run. There is no doubt about it that interest of owning a house which belongs to you has now become more important. A lot of people who were living in rental houses are troubled.
So I think it is very important to these millenials to learn it is good to own house and luckily with all the benefits of low cost loans today available; 7% being the lowest you can buy a house under a PMAY scheme.I think it is really a best time to buy and then first you would pay off is really going to be compensated by inflation over the period of time and hence your interest would be zero and you'd be able to pay for your house 15 or 20 years.
I have a slightly different thought. I want to give you an analogy of car market. The car market in 2019 consist of Mercedes-Benz, the BMW where Mercedes Benz sold 10,500 cars approximately and BMW sold around 9,000 cars and Maruti sold 1.7 million cars.
Over the period of time what is happening is the demand in the country is for Maruti cars I am in house is equivalent to Maruti why the production is in terms of Mercedes Benz and BMWs. We have a mismatch in terms of supply and demand the government is also instrumental in creating this nonsensical situation because they have made the circle rate, the jantri rate very high to the highest point in order to collect revenue but that meant that you cannot sell at lower than that price.
So for producing affordable housing throughout the country has become quite a problem but we want to make affordable housing then you can't sell it at the highest price.
The PM have of course have done the wonderful job in the housing for all projects and the PMAY Scheme where they add push to create 1.1 crore houses around the country in that segment. The prime minister is fantastic but we need to to do more.
According to the perception; the real estate as an industry is neglected in last years for various reasons. Tell us do you see those power people, policy makers have understood the multiplier effect that the real estate sector has on the economy do you see them taking proactive action.
Yes, the reason why I am saying is that the prime minister Office, Defence Minister, the Housing Minister in particular, Governor of RBI all these people have reassured us that the sector is definitely seriously flagged out by them; they agree and accept the truth. The employment generation due to real estate and construction comprises of at least 50% of the working population of India, it contributes directly 7% of GDP of India and all the countries in the world which went into double digit GDP growth was because of infrastructure and real estate.
China, Europe and America they all agree that housing is an important sector of the economy. They're doing a lot for the company in terms of attention, The government has have to many other sectors to look at. We have the issue of employment and skill development; we have the labor available but then not much skilled plumbers, masons, electricians, carpenters while you can get unskilled labor easily; we are challenged over there that many times jobs gone a begging in our industry specially in construction.
I must say that government is looking at it very very seriously but the question is it sufficient? is it enough? Is it fast enough? Are we going to bring it back?
We need the last mile funding we asked last year for 25,000 Crores and the government agreed to full 25,000 crores in creating a Swami Fund. Today, when they realize the problem the situation we need 1.50 lakh crores last mile funding now the government has also agreed to that. We just need the enable factor of creating a platform to put up these funds if they do so you'll be surprised a large amount of projects which are stuck not only in NCR region but all over the country will see a boom.
Attention has given but not enough, we need to do much more some has happened some is happening and some still needs to happen
Tell us about commercial real estate coming up. What is your Outlook in the commercial real estate coming up?
My belief is commercial real estate is not dependent on the factors which affect residential real estate. If GDP is going to fall by 5% commercial real estate demand will fall irrespective of anything else. The day we bring back GDP to a positive number which we can and we should and we shall; I promise you, commercial real estate demand will go back up again. Will work from home will also be the factor; answer could be yes or no but my view is it will be somewhere in between. You will not have the offices emptied out but you will see different types of companies doing different types of businesses having 5%, 10%, 20%, and 50% people work from home but you are not going to say closure of the commercial spaces.
So yes this changes likely to happen and it will happen however if the GDP growth continues and it becomes positive which I do believe in 2021 it shall become then the commercial real estate demand will come up again. My belief is that you are not getting everybody working from home at all. I don't think that it is going to be the reality but some people working from home and certain businesses working from home search and will happen if that happens you will need bigger homes will need better homes you need better facilities in their homes.
The demands for residential real estate is already there, the office commercial space will come back as soon as the GDP numbers look positive.
Retail supported the residential real estate. The retail sector is between 1,75,000 Crores to 2,00,000 Crores approximately. What happened to the retail sector of real estate? what has been your prognosis?
A. The real retail space is going to change permanently which means that the large number of people were not used to buy things online have started buying things online. I am happy to see people buying things online and that will continue to grow, this has been changing very slowly now the habit is going to back very fast. I do see a very positive angle in online selling this is definitely going to happen. A lot of companies will require smaller spaces in the retail size.
The retail is never going to go completely, never. You will see higher proportion of sales taking place online as compared to on the sites but people are so happy to go to shopping malls that is a part of social endeavor of human being. Of course there is going to be the change in the pattern of retailing which is going to take change in the future and also the food and other businesses has also going to get the major problem of shakeup. Because of social distancing becomes a need and must be followed for so many more months, it will going to hit some other businesses very badly, but it will not be the same again anymore.
Give us your view on Warehousing Sector. Do you see warehousing space doing very well in future?
A. The Warehouse spacing is growing by leaps and bounds. Even in the year of 2020 the growth has been stupendous. GST coming in has made a world of change in terms of consolidation possibility to do area outside the city you will have to have informal housing.
Now the warehousing in logistics is in and entirety is going to see the change. It requires a lot of money it will be a huge play but there is going to be consolidation in this place because you will be going to get the large warehouses, automated warehouses, gold chains, specialized warehousing and we will be benchmarking with the international best of bests.
It will require the large amount of capital it will see the huge play in next 12 to 24 months. We at Hiranandani have also set up a platform along with Black Stone for the setting up of 50-50 joint ventures called Green Base called in warehousing, logistics and industrial space.
But it is going to be in the consolidated position and it requires a huge capital input, specialized activity which is not going to be the game child of every single person. I agree with you that growth story is huge but this is an area of consolidation and specialization.
This pandemic has lead us to wear our thinking hats and be innovative. Tell us what are the changes needed for a real estate developer to thrive in this new abnormal?
A. My view is that we need to have market study before you do a project which is step number one. You need to find out how many Mercedes Benzs and BMWs will sell, what's the time you build a building, and more. Now we need to do a market study to find out what is the demand for Marutis and how many demands for expensive housing equivalent to BMWs and Mercedes Benzs
The state governments will play a very big role in order to do this consolidation in terms of price point that we need to think of now. If they don't do this consolidation then there is going to be the major issue because you can't have an out price land and create affordable houses it's not going to happen.
So it's not only developers who have to make study but this state government will also have to work out and say what is it in the parameters and accordingly makes this things happen.
In future you have to treat the customer like the king and be able to deliver quality products at reasonable levels. Everyone should not set in the marketplace and make Mercedes and BMWs houses because the demand is not in that segment and demand is in the other segment of affordable housing which holds the unlimited number of sales which you can possibly do.
If you have to make three predictions for future of work, business and economy and real estate. What would those be?
I think the work ethics in the country is extremely important. The fact that you have to give back to this society is extremely important and you should have the purpose in creating products that we do.
Work ethics like delivering quality, delivering efficiency, delivering customer service and on the work ethics side of every business not only real estate will have to turn where customer becomes the centerpiece of the entire activity.
We are not used to change, we are very satisfied.
Reliance, 35 years ago, 95% of the company was textiles and today Reliance is only .001% in textiles.
This shows how change becomes necessary. We need to adapt to the change taking place.
The second most important thing we need to adapt and we need to change and we need to imbibe technology.
The future of India is great, we have great possibilities, and people have intellect, entrepreneurship good leadership in the country. Unfortunately the pieces are not put together very efficiently. We do find inefficiencies, inconsistencies and stuff across the board and I think that needs to be fixed. You also need to fix the policy, bureaucracy interference, corporate interference and all these aspects of this.
Will the liquidity position improve? If yes, by when?
A. Liquidity question has two aspect of it.
One is old debt which has to be repaid to which the reserve Bank of India has announced one month of whole over. Mr KV Kamath has now been appointed to lay down the terms and condition under which the RBI will direct banks and financial institutions to do so which should be expected any day now.
RBI has also recommended that certain areas and things about 20% additionally fund should be given so that is likely to happen but ultimately at the end of the day the project must sell.
There must be a demand situation that is why we have been asking the government to actually create not only a supply push but a demand push and that has not yet happened; so we are asking them to cut GST by 50%.
We need to cut GST by 50% to increase demand not only in real estate but all businesses including hotels, construction activities, and more. Cement sales for example draws 28% GST and I don't think that's correct not do other areas.
So in order to increase demand we need to cut GST and also increase liquidity which RBI is already doing but probably more to be done.
I believe, we need to build for the large base of the India and not only for the top of the pyramid.