Indian real estate set for $20-$30 billion investment windfall: Niranjan Hiranandani

Hiranandani's sector focus: As Prime Minister Modi embarked on his third term, the initial announcement to construct 3 crore houses set the tone for developments in the real estate sector.

In an exclusive interaction with Republic Business, Niranjan Hiranandani, Managing Director of the Hiranandani Group and Chairman of NAREDCO shared his indights on how this key policy move seemed to align perfectly with the sector's needs, even before it was formally requested.

He also highlighted the need for incentives in rental housing and explored the importance of granting infrastructure status to housing projects. Additionally, he discussed the potential economic benefits of slum redevelopment initiatives.

Edited Excerpts:

Q: As the Modi government continues its third term, what transformative policies do you expect to see that will revolutionise the housing sector?

One of the policies which I love has already been announced in the first Cabinet meeting of PM Narendra Modi. PMAY scheme has been extended to 3 crore houses, 2 crore in rural areas, 1 crore in the urban areas, and continued the interest subvention scheme over it. Affordable housing is being given the biggest support. And I'm extremely grateful to prime minister Modi for having done this for the people of India. It's so important.

Q: Full budget is around the corner, what are the top 2 expectations from the budget for the real estate sector?

I think in the real estate sector, rental housing has never been considered and I think that is extremely important. Even in the richest country of the world, the United States, at least 50 per cent people live in rental housing. But there is no income tax benefit to create rental housing. And hence and the poorest of poor, my driver, my servant cannot buy a house immediately. He needs rental housing. 

So I think some incentivisation in the budget is required for governments as well as private agencies, private companies, developers and individuals, and even NBFCs to actually build affordable rental housing.

I think that is a need of the day. Even if I have a house, tomorrow I get a job in another city. I'll go on rent. So that part of the thing, unless you don't incentivise it, it's not going to happen. 

So in order to improve the economy, I think one my first request is that it should we should have a good incentive for the next 10 years on rental housing.

The second important thing, which I do believe, is to give infrastructure status for housing. Up till now, we haven't got that. And especially when you do townships, you're building infrastructure of roads, hospitals, schools, gardens, all the other infrastructure. 

So it's like an infrastructure project. But we haven't yet been given that infrastructure status, and hence, we cannot get the financing model under the infrastructure status.

So I think my second wish to the honorable finance minister would be to give infrastructure status to housing, especially for townships.

Q: Global investments are dipping in the real estate sector, what according to you explains this decline?

A: I think prime minister Modi coming back in his next term itself is an indication because people were not sure. You have to understand that real estate is a long term project. It's not like FII is coming in with the money and drawing the money out. 

When anybody wants to invest into real estate, they look at 3 to 5 years to do it. My belief is now you will see real investments to come into India now that we have a government of another 5 years, mister Modi, and the the policies are already in place.

So with the continuity of policies, I believe that you will see a lot of investments into the real estate business, both on the commercial side and the residential side. Up till now, the majority of investments all came in the commercial side. 

But I do believe now with the subsidies which are now being given under the PMAY scheme and other schemes, you will also see investments come in into the residential side. It's very difficult to say what investments are likely to come, but I think at least this year we should get at least $20,000,000,000 to $30,000,000,000 in the real estate sector as a whole.

But it all depends because closure of projects do take time in the real estate sector. So but 20, 30,000,000,000 could be easily done.

Q: How do you see the sales of homes going forward in 2024?

Well, again, guesstimates. Futures are not ours to see, and we can be speculative wrong. My belief is that we will have a 15 per cent  growth this year from last year. So last year was a 12 per cent growth from the earlier year. 

This year I expect a 15 per cent growt\ but I also expect that the percentage for affordable housing will grow more this year in view of the PMAY wise scheme being brought back.

Q: Since half of the year is gone and half is left, how do u assess the 6 months gone by and what do you expect in the upcoming 6 months to come ?

As I mentioned to you, affordable housing took a beating and from 29 per cent total, volume, it came down to 19 per cent. I think it will come back to 29 per cent, but it may take 12 months Because ultimately houses are not like instant coffee. You can't make them in 3 months, 6 months. 

So new projects which will come up will take time. So I think in a year's time, this rectification will take place.

Q: Infrastructure development plays a crucial role in real estate growth. What infrastructure projects do you believe will have the most significant impact on real estate in the coming years?

I think all infrastructure is important, very important. Water to homes, the jal yojana, which the prime minister has to individual homes, the roads which we are talking about, both city roads as well as national highways, railways, I think, will become important.

I think we will double the number of airports in the next 5 years, and we have seen that already started. Mumbai will also see the next airport next year by the end of next year. 

We will also see water transport growing higher, multimodal loads of transport. Let me explain a point. In the logistic cost of any item which is bought or sold in India is 13 per cent.

So any item that you buy, 13 per cent is the logistic cost. The same thing in China because of good infrastructure is 7 per cent. So we are losing 7 per cent because of bad infrastructure. This will hopefully in the next 5 to 7 years come down to 8 or 9 per cent. We'll be closer to China.

So we will be more competitive. We'll be able to export at cheaper rates. We will be able to buy products at a lower rate. All that is going to happen in the next couple of years. 

Infrastructure is extremely important, but all infrastructure, Bullet trains, regular trains, Delhi Mumbai industrial corridor, all these will become extremely important in the next 5 years, and it's our expectation that it will work.

Q: What are the main hotspots for real estate investment, aside from Mumbai and Delhi NCR?

A: Anywhere where you see development taking place, whether in infrastructure or industry or religious spots as we see or tourism destinations. These are the 4 or 5 areas which will happen all over the country. 

If you look at the tourism sector, we haven't touched it yet. If you look at medical, my view in the next 5 years, the medical space is just going to grow.

The expectations of health and thing is huge that is going to take. So all this and more, education, but not education in the normal sense of the term. That is going away. 

50 per cent of all the people in India should have only skill, skill sets education. All the people want to become BCOMs and other things and get jobs.

That should go. We need to write from the schools and other things, colleges, write, do skill development, which is there. Because the jobs and the skill sets are growing unbelievably. Whether it's construction, media, journalism, you name it. Skill sets are lacking.

Engineering and all the other things will have to be correlated with skill development. Half the engineering colleges will close down and become skill centers that need to be done. 

So education has to be completely changed in the next 5 years and unless they don't do that, lots of people will be educated but unemployed. What we need is maybe appropriate education and skilling and 100 per cent employment.

Q: Which segments of the real estate market (residential, commercial, industrial) are expected to grow the most?

A: It is always residential. With our population growth, you must remember, residential will always be a highest percentage. All the others are ancillary to it. So commercial, retail, hospitals, schools, colleges, police stations, everything is important. 

But no matter what happens, 70 per cent of our construction through the country will always be residential in homes and next 25 years, it will be like that.

Of course, the other components could change. So for instance, let's look at data centers. We work on data center. What's the quantum of data centers compared to the total construction in India? 0.001 per cent.

So you may think large number of data centers are coming up, but in reality, the total quantum as compared to residential is very small.

Q: What is the typical ROI range for investors in the real estate sector?

A: In the real estate sector, we have always seen something between 12 15 per cent as the returns on capital which is invested.

In some places, you have seen even a 200 per cent return. But in real, when you do 5-10 projects, it's between 12-18 per cent is what you normally will get on a growth percentage. 

And this is exactly what the, real estate companies are showing. However, they are leveraged. And because of the leverage, the overall returns become higher. But otherwise, it's between 12-18 per cent.

Q: What is the biggest current worry in the real estate sector that needs immediate attention?

A: I think it's approvals. The the approvals, I think, in the state levels are going very slow. I think, a lot of problems are there as far as approvals are concerned. 

And I think, we need the ease of doing business needs to be improved in the real estate sector. So I think the prime minister needs to intervene in that position if you really want the housing to grow.

Q: How do you foresee the real estate market evolving in the next 5 years? What's your vision?

A:  I think it will grow by 15 to 25 per cent compound growth per annum for the next 5 years.

Q: What's your take on the redevelopment of slums and the proposed line of treatment?

A: We have already seen examples of how it can be done. The Dharavi scheme itself by Mr. Adani itself is example, and we know how it is to be done. We have learned in the last 20 years what should be done. 

What we need is, getting the state government to use its government agencies, put an initial capital of maybe Rs 20,000 crore, and we could make a profit of Rs 50,000 crore after redeveloping 100 per cent of the slums of Mumbai.

We can make Rs 50,000 crore net profit for the city, which will go to the government. And, of course, GDP of India will grow by 1 and a half per cent if all the slums are developed and redeveloped. 

Only for that slum scheme will contribute to India because of steel, because of cement, because of employment, for because of all the materials that you will be requiring and the GDP growth and investments, So we grow about 15 to 25 per cent compounded per annum and we plan to continue to grow.

Q: What’s your recent big ticket investment?

A: Well, just now my son is doing data centers and he’s invested into Nvidia chips, which is a very big investment.

Q: It would be very interesting if you could also talk about fractional ownership as it's on the rise. Do you have any comments on that?

Fractional ownership is a concept by which you break an asset, which is producing annualised returns and sell those fractional ownerships. Earlier what happened? You had to buy a whole building and get rental income for it. 

When you do fractional, you and I can put in Rs 2 lakh like in a REIT and do it. So you can buy 1 apartment or 1 so many square foot and get a proportionate share of return.

So that fractional ownership concept has just come into the minds of people, but it has not been implemented properly. 

I think in the next couple of years, just like REITs took some time for it to come, took 15 years to come, I think fractional ownership will come. Hopefully, it'll come faster.

Q: Can fractional ownership be the next big thing in wealth creation for people?

A: I don't think it'll be the biggest thing. People are used to buying their own homes and putting it on rent. Oh, you know, that possessiveness of, having a house. There's no substitute. 

This paper of buying a share and saying that, you know, we have a fractional ownership.

Indians are not into it. Sentiment is far. Do you know that the NPA and home loans in India is the lowest in the world? Lowest in the world. It's less than 1 per cent.  And you know why? Because nobody wants to default on a home loan. 

The safest lending by any bank or NBFC or housing finance company in the world is in India and it's the that is why it is the cheapest lending in the world.