With the real estate sector still grappling with the after-effects of demonetisation and GST, the sector might see lack of investors for the next foreseeable future, Harshavardhan Neotia, AIMA President and Chairman Ambuja Neotia Group, told Moneycontrol.
Operating through several companies, the Ambuja Neotia Group has business interests in real estate, hospitality, healthcare and education.
Edited excerpts from an interview:
Q) The government has been saying that private investment has dried up. What is your take on that?
The fundamental issue is about demand. The moment demand is there, investments should come. I think the capacities that were built in the country between mid-2005 to 2013 were more than the anticipated demand. Demand slowed down initially because of policy paralysis and other disruptive issues. So there was an overhang of overcapacity. Now we are coming to a stage where most of the capacity has been utilised. Inflation has been benign, interest rates are softening and I think this is the right time for investments to pick up.
Q) Are there any other reasons for this stagnation in demand?
There are several issues. The over-anticipated demand gave rise to excess built-up capacities. Secondly, global headwinds played a role. We know that there has been a rethinking on open markets which has had an impact on exports. Thirdly, our own economy has been buffeted with issues like a new GST regime. These will help us in the next boom period.
Q) As an entrepreneur, by when do you see the real estate sector overcoming the after-effects of demonetisation and GST?
As far as demonetisation is concerned, the corporate houses had only a temporary blip. There the impact was more on the mid-size and marginal firms. It has been a mixed bag where many of them have been able to come out of it and some haven’t. As far as GST is concerned, initially there were two-three challenges. One challenge was that it was a complex GST and a lot of people lacked the acumen. The second issue was rate anomalies. Third was the bottle-necking happening in getting refunds for exporters. As we talk today, probably two years around from its inception, we have pretty much overcome the big challenges.
Q) How can the businesses improve the ease of consumption and also ensure data privacy and security?
Data is critical to understand and predict consumer behaviour and develop innovations that make consumption more convenient and cheaper. The producers and marketers can use technology to observe how consumers use their products and what else they consume and get the necessary inputs to offer alternative and better experience to the consumer.
However, unrestrained and surreptitious obtaining of data violates consumer’s privacy. Moreover, consumer data obtained by a company can land in wrong hands because of internal corruption or criminal hacking. Therefore, companies have to ensure robust data systems and be transparent about what data they obtain and how they secure that data.
Q) What are the new kind of enterprises and jobs that can be created in the digital economy?
Thanks to high-speed internet, GPS, digital maps, fintech and machine learning, it has become possible to harness assets and workers for more output. Taxi services and hotels are great examples of businesses built on information aggregation and exchange. Digital economy is shifting a lot of the intermediation online without entirely eliminating physical intermediation. It is creating a large number of jobs in development of digital assets and managing of backend of digital businesses. Moreover, it is creating a huge number of physical jobs in customer care, delivery, installation, etc.
Q) In the real estate sector, many companies are going through a resolution process. Is there anything peculiar about this sector in terms of insolvency? There has also been a huge debate on whether homebuyers should be financial or operational creditors. How does it impact resolution for cases in the real estate sector?
With God’s grace, we have been left unscathed. But generally speaking, the real estate sector had a sizeable amount of people who were investors. Two things happened. It was difficult to sell your apartment at that price and you weren’t being able to sell it when you wanted to because of ill liquidity. So the investor community kind of walked away from the sector. Financing became more and more difficult. Therefore projects that had landed a certain completion, they found themselves in a cash crunch because of these reasons. The projects got delayed, and customers got hostile.
Then RERA happened and litigation followed. It became a perfect storm. Even if there were honourable people, they got caught in a difficult situation. Obviously, there would be people in the other end of it who have massively diverted funds. In this storm, it not only caught hold of people who were gaming the system, but even other who were not gaming the system because the whole cookie crumbled. Having said that, there has been a huge clean-up of the system, there has been consolidation. There was very low entry barriers to these businesses. I think now people will think before they want to get into this business. In a long term context, even though it has been a very painful period, it may lead to a more healthy, robust real estate sector.
Q) What do you see as the big challenges before the sector in the next 5-10 years?
I would think that investors will remain shy for at least the next foreseeable 3-5 years. So builders have to cater directly to consumers a lot. Second, the investor is not so particular of what he buys because he buys with an intent to sell. But a real user buys to use. When a user buys it, he has to see whether he can afford it. So there will be a greater push for everyone to do more of affordable housing than luxury, because that’s where the demand is truly going. I think there will be are figuring out of the real estate strategy. And because there is a lot in the pipeline that has been wrongly concealed, there are going to be incomplete projects that will lie around for years.
Q) How difficult has it been to procure loans for projects?
Companies are facing problems in getting loans. It has become a challenge.
How does this challenge affect a consumer?
Not in the immediate short run but it will happen soon. There is over supply and there is huge pressure on everybody to liquidate stocks. So now is a good time to buy for those who want to buy.
Coming to Bengal, every year there are investment summits. But we don’t see that translating on the ground. What do you have to say?
That is not the case. From announcements to conversions, it is pretty much in tune with that of other states. I don’t think conversion is really short but it’s never going to be the exact same. But statistically it is not skewed. The perception is like that because there is a history and that history sometimes contributes to the perception. The other is that the big iconic investments hasn’t happened. Investments have happened in small and medium scale segment and units that don’t make that kind of splash. As a result, the visibility is lower but the reality is fine. Therefore, there is a robust economy and job creation is also happening in the small and medium segment.
But educated people are struggling to find jobs in Bengal.
Maybe. Some categories may not be served. But the state looks at whether it is developing the economy and whether it’s creating the jobs. There are sectors where we haven’t been able to produce the desired results and we need to work hard on that. Of course there have been failures but things can improve.
So where do you see your company going in the next 10 years? What are the big plans?
We are concentrating on three sectors – hospitality, real estate and health. Most of our activities are concentrated in eastern India, not just Kolkata. We are doing projects in Bihar and Sikkim. In the last couple of years, the good news is we haven’t been in trouble. The bad news is we haven’t grown. So we have somehow stayed afloat. Had the situation been good, we could have thought of moving out of the state or region. India has had a rather long run of difficult period as far as the business economy is concerned. Hopefully that should change.