HDFC Chairman Deepak Parekh on Tuesday said he sees 20 per cent drop in property prices of unsold residential inventory, and advised developers to offload their stocks to enhance liquidity position.
He also cautioned developers against over leveraging, which can affect their businesses in the long-run.
“I think the prices of real estate have to come down and will come down. I believe Naredco’s estimate is between 10-15 per cent. I feel one must be prepared for even 20 per cent,” Parekh said while addressing representatives from the real estate sector through video conferencing, organised by real estate developers associations – Naredco and Credai.
He said the drop in prices will be for existing flats that are already built but the developers are sitting on those stocks as they are waiting for prices to increase later.
“Compromise, compromise and compromise. Be willing to offload some of the unsold inventories at whatever price. You need liquidity,” Parekh advised the real estate developers.
He said developers should not equate the private equity (PE) commitment or sanction line of credit available with them to liquidity in today’s time.
“No one who has sanctioned loans to you or given a PE commitment today will agree to disburse post COVID-19. They will review it again, they will change their mind and they will relook at the big issues,” Parekh said.
He said it will take at least six months for the demand in real estate sector to pick-up.
According to him, the current liquidity challenge which developers are facing is due to over leverage.
“Be careful of the perils of leverage. I have repeatedly said that leverage borrowing is a double edge sword. In good times it amplifies your profit, but in bad times it kills you,” he said.
Parekh said developers should use the Reserve Bank of India’s three-month moratorium option on repayment of loans as the last resort.
“Use the moratorium as the last resort because it is pushing the can down the road and there is a cost to it. Before opting for a moratorium, know what will be your strategy after 90 days when the moratorium is lifted. Don’t let it slip into NPA once the moratorium is lifted,” he said.
He said for the potential home buyers, who have got job security or cash flows, this is an excellent buying opportunity as prices will come down.
Parekh said corporates are likely to postpone buying commercial real estate at least till the time they have clarity on the situation.
“Let me reiterate that commercial real estate requirements will not evaporate. This work from home may be possible to some extent but we are not going to see the entire workforce migrate to a work from home culture on a permanent basis,” he added.
