‘Fundamentals strong but funding challenges remain’

Transparency in policies and clarity in regulations are needed to attract more funds into the Indian realty market and restore its credibility, says David Walker, MD of SARE Homes


South Asian Real Estate (better known as SARE Homes), a 100% FDI-funded group, believes that despite its cyclic ups and downs, the fundamentals of India’s housing market remain convincing. The company’s MD, David Walker, speaks to Housing News.

Q: To what extent, is the funding gap affecting the execution and timely delivery of projects in the Indian realty market?

A: The real estate and construction industry, are capital-intensive. So, availability of adequate funding, is critical for success. In the residential segment, the funding generally comes from customers, according to a construction-linked plan. When the market is weak, it leads to irregularity in the inflow of funds from customers, which, in turn, affects construction and delays the completion of projects. To tide over such periods, it is important to have adequate long-term funding for the project, to ensure smooth implementation.

Q: Don’t you think that the volatility of the Indian rupee and reports of price corrections, will deter investments into Indian real estate?

A: While the Indian currency has weakened over the last few years, it has been much more stable, since Raghuram Rajan took over as the RBI Governor, in September 2013. Prices of high-end and luxury homes have weakened over the last few years. However, the fall has been less, in the middle-income housing segment, where the margins are much lower. A weak rupee and the fall in the price of houses, presents an ideal investment opportunity for buyers, to take advantage of price appreciation over the next three to five years.

Q: What, according to you, is the ideal funding formula in Indian realty?

A: Generally, equity capital is used to finance land acquisition and the cost of construction is met, from milestone-linked payments from customers. It is also important to supplement this, with finance from banks, to ensure that construction progresses smoothly, even if there are any interruptions in the inflow of funds from customers.

Q: Are foreign funds still interested in the Indian real estate?

A: The fundamentals of the Indian real estate sector, make it attractive to foreign funds. However, this is offset by India’s low ‘ease of doing business’ ranking. The government has made it a priority to improve this ranking, which will make the Indian real estate market more attractive. The government’s target, of developing 100 smart cities, will also require huge funding, which will automatically involve foreign investors.

Q: Many international investors and private equity funds have burnt their fingers in the Indian real estate market. Do you think a better regulatory framework will change their outlook in the future?

A: A better regulatory framework is anyway required, to streamline processes and infuse a sense of security among investors. Also, better clarity in realty norms, will attract foreign funds.

Q: To what extent is investment in the sector being affected, by lack of proper regulation and taxation?

A: Developed countries have transparent policies and clarity in regulations, along with adequate infrastructure. A secure regulatory environment, will encourage capital inflows into the country and bring credibility to the sector.

Q: How can foreign funds and clean money help the end-users?

A: Adequate flow of funds helps in timely execution, thereby, leading to timely delivery of projects. Moreover, end-users prefer reputed developers, to avoid the risk of losing their money. The presence of foreign investors, also helps to bring in good practices, credibility and transparency, which are appreciated by customers.