Property developers should be prepared for up to a 20 per cent fall in housing prices and have to create liquidity by selling their inventory at whatever prices they get, HDFC Chairman Deepak Parekh said on Tuesday.
“Next six months are going to be extremely tough. You need liquidity. Get the cash flows coming by selling properties at whatever prices you get. Don’t sit on the completed properties,” Parekh said in a video call, attended by about 5,500 developers and jointly organised by industry bodies Naredco and Credai.
He said it was an excellent buying opportunity for potential homebuyers with job security and savings.
Parekh added that demand for commercial real estate would continue to be there in the long run. “After the lockdown, it won’t be a situation where the entire workforce would want to work from home -- people would still need to meet others. So in the long run, demand for commercial real estate will not evaporate.”
Developers, he said, should be careful about leverage. “In boom times, it amplifies profitability and in bad times, it kills," he said, adding that they should consider the moratorium announced by the government as the “last resort”.
Across the top seven cities, developers had an unsold inventory of 455,000 units worth Rs 3.7 trillion at the end of March, according to consultancy firm JLL.
Parekh said developers had to “compromise” on many aspects during these times.
“Take home less money this year and leave more money in the business. Cut expenses and be stingy in expenses,” he said. Developers should focus more on completing projects even at the cost of launching new ones, he added.
He advised them to go for development management contracts, joint developments, and debt asset swaps and so on to reduce the liquidity burden. “Many developers have given their plots to large developers such as Godrej and Tata, and working in partnership with them. Don’t kill yourself by doing everything yourself,” he said.
Parekh said developers should sell equity to PE funds, global pension funds, and sovereign funds which would help them in the long run.
He said they should nurture relationships with bankers and should not change bankers just for 50 basis points or 70 bps reduction.
Parekh said the Reserve Bank of India should consider one-time restructuring of developers loans to tide over the crisis in the industry. “The NPA norm of 90 days should be changed to 180 days,” he said, adding that the RBI should also consider direct purchase of bonds and commercial papers of developers to fund the economic activity.
Parekh said banks continued to be risk averse due their past experience of bad loans. “What we need to do is change their approach."
To his suggestions for state governments, Parekh said they should waive stamp duty and registration charges during festive months of September and October.
“States should review ready-reckoner charges frequently and allow deferred payment charges on various levies," he said.