CREDAI does not see interest rate hikes denting demand: Harsh Vardhan Patodia

Demand for retail spaces has come back in Asia’s third-largest economy after a pandemic-induced lull for two years.

Harsh Vardhan Patodia, who helms the Confederation of Real Estate Developers' Associations of India, told DH’s Reshab Shaw that he expected things to get even better despite the rise in interest rates and challenges faced by the industry.

The CREDAI president also urged the government to reintroduce the input tax credit for developers in a bid to reduce home prices. Edited excerpts.

How has the real estate sector performed in recent times?

The sector is performing quite well for the last seven to eight quarters. And there's a very good revival in the market in terms of domestic demand, office leasing, industrial warehousing and even retail has come back. In some micro markets, we are seeing sales which are even higher than pre-Covid levels. People have realised during the pandemic that home is where we ultimately get our shelter. Because of work from home, your entertainment, healthcare, education, is happening from home. ‘At home’ is becoming the epicentre of your life right now. All of us have realised the importance of owning a home, and that too a spacious one.

What are the challenges faced by the sector?

Demand has been fantastic in 2022 and is backed by the lowest housing mortgage rates in the country in the last many, many years. And is also backed by the push and incentives given by the governments at the state level by reducing stamp duty. A 2% saving is quite a lot for a customer. But the only challenge is the phenomenal increase in the input cost, which we have seen in the last one and a half years. Construction input costs have gone up by more than 30-40% in many cases, and average price rise is 25% across the board. So this is a very big challenge as far as the developer community goes. These are very, very big concerns. But recently the government has taken some steps to cool up prices of coal, fuel, steel and a few other things. But I think we need some more steps to actually bring this under check.

What should the government do?

Government is on the right track to curb exports and to reduce the duties on input costs of all these industries and commodities. Additionally, they have reduced prices of diesel and petrol which has an overall logistic cost. So, the other thing which we have requested the government to do is to allow us input credit, which is still not available to the real estate industry for new projects.

Will raw material prices stabilise in the near future?

There are two things: one is normal inflation and second is geopolitical tension and supply chain disruption because of this war. So, we don't expect the war to continue forever. So, we are waiting for things to abate. It's a very complicated situation and we have to wait and watch how things pan out. And these are extraordinary circumstances also.

Is it wise to invest in commercial real estate?

See commercial real estate leasing is at a very, very good level right now. I think a lot of people are coming back to offices and leasing continues to hold good. Apart from offices, the warehousing and the logistics industry is doing exceedingly well. Major inquiries of retail and high streets are back. F&B is doing exceedingly well. So, we see a very positive bounce in the commercial sector also.

RBI is expected to further raise interest rates. How will this affect demand?

We feel that the impact is not going to be very high because the increase is still very marginal. And secondly, we found that the disposable income in the hands of our buyer has gone up because of salary increases and control on expenditure. So, we don't expect that there will be a major impact because of rising interest rates. And this hike could be for a short term only. And this slight variation, depending on the external economic factors, may always be there.