Uptake in residential realty will improve by H2 of FY22

The housing realty segment in India is enjoying both favourable conditions with housing loan interest rates being at an all-time low and at the same time with dip in residential sales. Purchasing a home or investing in realty, during current times, is the one to look out for. Arvind Hali, MD & CEO, Motilal Oswal Home Finance Ltd, in an exclusive interview with Bizz Buzz, spoke on his company's continued growth during pandemic, the performance of residential real estate, scope of REITs as an investment option and the impact of unchanged repo rate by RBI on the industry

While the commercial segment has taken a backseat, residential realty has attracted both first time buyers as well as investors. What are your thoughts on this current popularity of real estate in India?

If we go back in the last decade or so, especially last 7 to 8 years, we have seen that there has been significant price correction of 15 to 20 percent in the residential real estate as well because of the economic slowdown, GST, demonetization and so on. But subsequently the pandemic has changed the entire dynamics and we are seeing more of work from home, work from away concepts getting rooted into the ecosystem. Earlier many of the corporates were skeptical and questioning the viability of these kinds of concepts. However, what we have seen is that pandemic has really forced this option on the corporates honestly the results have been great. We have seen people's productivity improving, especially in cities such as Mumbai and Delhi, people are saving on travel time and it has enabled work life balance. And this has also allowed corporates to cut-down on some costs, save on rentals and they have also on-boarded people from Tier-2 and Tier -3 cities.

External factors like government intervention, creating demand side interventions like concessions, discounts by builders, subvention scheme, flexible payment plan and so on has helped to boost the demand. And this demand will rise many-fold from the current level, once this pandemic goes down and cashflows of the customers improve. And I think there will be a strong demand in the affordable housing segment.

Despite industry being marred by Covid, now recovering from second wave, what would be the scope of REIT as a lucrative investment option?

REIT portfolio has been one of the best performing asset classes available with long-term, If you see US alone, 145 million people have invested in REITs through their savings and investment funds. So, I would say that equity rates have also outperformed S&P 500 in 30 years period. So, retail investors can definitely build well through commercial real estate. However, in India REIT is still in a beginner's stage in terms of being a popular asset class for investing. It is now popular with wealth managers for their ultra-high net worth individual customers, but realisation of REIT is quite far away and as you mentioned, with the current slowdown in commercial real estate this may get delayed further (REIT as investment option) but definitely it is asset class worth investing.

RBI's decision to continue with unchanged repo rate has been a welcome decision. What kind of respite will this move offer to the realty sector ahead of a possible third wave?

We have already seen that interest rates have been pretty much at their lowest level. I don't expect the interest rates to go down further from here and I think more than interest rate currently it is the crisis of confidence. Unlike the first wave, I would say cashflow have not been so severely impacted this time. So, people were more prepared. But customers are more careful to look into long-term investment like real-estate, so all in all, this is a wait and watch (situation). If the improvement from pandemic continues, we would see that around festival time definitely there would be stronger uptake in the second half of this financial year.

Your company Motilal Oswal Home Finance Ltd. reported profit of Rs 18cr in Q4 of FY21 and Rs40cr in FY21. What are the plans to keep the momentum going? Any consolidated target set aside for the end of FY22?

We are one of the leading players in the affordable housing segment and we have a very strong balance sheet and credible promoters and strong net worth of about Rs 1,000 crore. So, from a balance sheet point of view, we have everything that it takes to grow the business. We have almost 1300-1400 employees spread across 11 states and almost over 100 branches and we are targeting the end-user low-income group segment.

So, we are pretty much poised from distribution to sale, processing, technology, and even the liquidity is very strong. We are poised to scale-up the business. Despite the second wave of the pandemic has shifted the plans to about a quarter, we believe that we should be able to capture and double our disbursements from the previous years.

In tier-1 cities, consumers choice is shifting more towards self-owned home than rental. What would be the scope of compact home projects under such changing times?

In terms of affordability, we have seen that property prices had gone up, but there were corrections. But these corrections were more in the premium segment. So, I think compact homes will definitely be on the rise and there would be a strong demand in this segment.

Any plans to expand your company's operations in housing finance to the overseas segment as well?

Anything is possible eventually. The organisations evolve over a period of time and the target market customers can also change over a period of time as we grow in terms of scale and size. But in the near future, immediately we don't have any such plan.

What are your thoughts on the expansion of SWAHMI scheme to further support the realty sector?

The parameters of evaluation are quite stringent. Very few developers would qualify under the fund. So, that way it restricts and lot of these developers, who would qualify, may not really be interested to get into affordable housing because this segment has lower (profit) margins for builders.

Will you company enter luxury housing segment?

No. We are very much focused on low-income and middle-income housing group. We will continue to focus on this segment.