Mumbai: Deepak Parekh, Chairman of mortgage lender Housing Development Finance Corporation (HDFC), on Tuesday said the real estate prices in the country would correct by up to 20 per cent in the wake of coronavirus pandemic and the resultant nationwide lockdown.
“Prices of real estate have to come down, and will come down,” Parekh said in an address to real estate developers at a webinar organised by the National Real Estate Development Council (Naredco). “I believe Naredco’s estimate is around 10-15 per cent. One must be prepared for even 20 per cent,” he added.
For potential home buyers, who have job security or cash flows, it will be an excellent buying opportunity, he said. “Real estate is an immensely important asset class, and the value of global real estate was more than the value of all the stocks and bonds combined,” he said.
Parekh said Indian real estate market was already going through prolonged pain for various reasons such as economic stress in certain segments, high leverage, tight liquidity and rising non-performing assets (NPAs) in construction finance.
“The irony is that while the government announced incentives for affordable housing by various means, they coincided with the world’s deepest crisis,” Parekh said.
The global economic slowdown coupled with COVID-19 (coronavirus) pandemic is likely to negatively impact residential real estate demand in the country this year.
According to the rating agency India Ratings, residential real estate demand is expected to decline in financial year 2019-20 (FY20) after showing a slight improvement over FY2017-2019.
Parekh warned developers against high leverage, and said it is going to work as a double-edged sword. “In good times, it amplifies your profits. In bad times, it destroys you. Be careful of the perils of leverage,” he said.
He also advised developers to use the moratorium as the last resort, as it would just mean pushing the can down the road. He advised them to resort to equity for fund raising even though it would mean dilution of valuation and ownership. “Enhance the equity cushion. You need a higher cushion of equity,” he said.
The industry veteran also asked the developers to focus on completing existing projects, rather than launching new ones. “Take home less money, keep the money in the company. Cut your home-running expenses. Be a little more stingy in your expenses,” he said .
