Interview | Pandemic Has Impacted Affordable Housing Segment the Most: Sundaram Home Finance MD

In an interview with The Wire, Lakshminarayanan Duraiswamy says many prospective homebuyers currently believe that there is fear everywhere and that survival is a priority.

Like many other sectors, India’s real estate industry has been dealt a massive shock by the COVID-19 pandemic. By one estimate, the sector will face losses of as much as Rs 1 lakh crore by the end of the current financial year. An accompanying credit crunch, the same analysis notes, will also lead to a contraction in residential sales, perhaps bringing down sales to 2.8 lakh units in FY 21 across the top seven cities from 4 lakh units in FY’20.

In an interview with The Wire, Lakshminarayanan Duraiswamy, Sundaram Home Finance’s recently appointed managing director, says prospective homebuyers currently believe that there is fear everywhere and survival is a priority. Accordingly, unsold inventory is likely to remain largely stable, with only a marginal decline in the second half of this financial year.

While the government launched a COVID package with specific sops for affordable housing, Duraiswamy says its impact will only be seen in the medium-term and not immediately. Edited excerpts from the interaction follow:

You have taken over at a time when the world is battling an unknown enemy. The escalating virus has already caused immense damage to the world economy. And, the prolonged lockdown in varying formats across the country has pushed the Indian economy to a quick-sand kind of a situation. How do you read the overall scene at this juncture? And, what does it portent for the home finance industry?

We have not witnessed anything of this magnitude globally. This is an unprecedented event with no parallels. This has caused medical issues, humanitarian challenges and economic crisis – all at the same time.

Top it all, the Indian economy was already facing headwinds pre-COVID and this has exasperated the situation. Obviously, several efforts are being made by the governments world over, medical research is being fast-tracked and there are no quick fixes.

The home finance business is no exception, and these are challenging times. Real estate industry has been reeling under one crisis after another over the last 2-3 years. Markets are currently on a pause and any meaningful activity can be seen only in the coming quarters. Activity levels have begun but there is still a long way to go before we see green shoots.

An attendant at a fuel station arranges Indian rupee notes in Kolkata, August 16, 2018. Credits: Reuters/Rupak De Chowdhuri/File Photo

On an average, property and other real estate assets account for 91% of Indians’ personal wealth. Representative image. Credit: Reuters/Rupak De Chowdhuri/File Photo

The real estate industry was in an over-supply state even before the lockdown. Have things gone worse now?

Over-supply conditions remain. There have been no new launches in the last four months. In the wake of restricted supply and likely demand catch-up post COVID, unsold inventory levels should, in fact, show a marginal decline.

With new launches coming to a halt, homebuyers might selectively get into buying mode in the second-half and select from the unsold inventory from projects across various stages of construction. In my opinion, unsold inventory is likely to remain largely stable, with possibly a decline of 3-5%.

Do you think that the push to the affordable housing segment as part of the Covid package will have a meaningful impact in the short-term?

Nearly 40-45% of new launches in the top seven cities have come in the affordable housing category. There has been a strong push from the government on the “Housing for All” mission and several sops provided to the home buyers and the developers of this segment.

Also read: Covid’s Lockdown: Hell Hath No Fury Like a Landlord Scorned

With the current COVID-19 outbreak, the affordable housing customer segment is the most impacted. These are homebuyers with limited income and do not have ‘work from home’ facilities. Some of them will have loss of pay or even jobs. This group will revisit their purchase decisions. There are inherent issues present in this segment such as ‘real’ affordability, location, proximity to workplace and attendant infrastructure challenges. These cannot be solved overnight either.

So, the special COVID package may not have immediate-term impact. But certainly, will see results in the medium-term.

With the job market in a tailspin, do you think the individual mindset will be on buying a home?

Currently, there is fear everywhere and survival is the priority. As we eventually get past this stage, people’s focus will shift to getting back to work and ensuring stability.

We are likely to emerge very different from this situation, with significant shifts in consumer behaviour and lifestyle. This long pause, coupled with forced ‘work from home’, might make people to re-evaluate their location choices and push up demand in peripheral locations.

Photo: Drew Dies/Flickr (CC BY-NC-ND 2.0)

Going forward, how do you see the aspiration of an individual for having a roof over his head panning out?

Ownership of house has always remained an aspiration for any household. Current situation is further expected to drive people to seek ownership of houses to have a sense of security. Besides, the ‘work- from-home’ concept will enable people to look for houses based on affordability and not necessarily constrained by proximity to work.

Preferences will change to larger houses at affordable costs that can also accommodate a small office set-up.

Do you anticipate a reconfiguration of the business model by real estate developers in the wake of COVID-induced changes in the general mindset of individuals?

The Indian real estate sector has been consolidating for the past few years. With the onset of RERA, financially weak players found it difficult to adhere to compliance norms and were either going out of business or re-configuring their business model. The liquidity crisis further worsened the situation and a new wave of consolidation was kicked off. I believe this crisis will reset the Indian real estate sector.

Also read: Tenancy Agreements and COVID-19 Lockdown: A ‘Majeure’ Headache

The real estate developers will need to make this forced change now. Demand will come largely from end-users and not from investors. To that extent, the size, configuration and location will undergo some changes. Land prices will correct partly offsetting the house prices. Affordable housing segment will get a boost and get some reasonable traction.

Representative image. Photo: Reuters/Edgar Su

As a home finance company, what are the challenges going forward? Is it the availability of funds or availability of home buying customers?

We have always been conscious of liquidity management, and, therefore, availability of funds is not a constraint. Cost of funds is based on demand-supply situation and keeps varying. It is in these times that conservative liquidity policies and diversification pays.

Availability of home buying customers is a function of underlying demand and that is driven by several factors including location, price and affordability. In times like these, the buyers keep waiting for prices to come down and builders try to balance liquidity and prices. This will eventually settle, and we will see traction again, albeit at a slower pace. Further, we will have to closely monitor the payment behaviour of the customers post moratorium. We are well-equipped to manage these ongoing challenges.

As a Managing Director, what are the roadblocks you see to navigate the ship in this critical time like this one now?

The role of any managing director is about handling challenges and navigating through uncertain times. So, this is not something new or unexpected. Yes, this pandemic has caused dislocations of an unprecedented nature and scale. It is in times like these that you go back to basics and reaffirm our business philosophy – always do what is right for the customer.

Business challenges have always been there, and we will continue to manage and thrive. We all need to realign to the changing landscape.