CAPITAL GAINS

Pranay Vakil’s career history is steeped in real estate. He laid the foundation stones of international property
consultants Knight Frank India. Even since quitting in 2012, he has remained a media darling and often been quoted on a variety of subjects. Chairman of Praron Consultancy India Pvt Ltd since 2012, he has shared his views on Mumbai’s real estate prices in the fast lane to creating demand in not just tier II cities but tier I cities too (through second-time buyers). So when Vakil spoke at Rotary’s September 25 meeting, everyone listened. After all, land is currency.

Referencing iconic filmmaker Raj Kapoor’s movie Kal, Aaj aur Kal, Vakil presented listeners with India then, now and tomorrow. Vakil chronologically took the audience through a vivid trip through India’s real estate scenario.

He said it was the rampant corruption of the past that had created hardship in the availability and affordability of
housing in India for the longest time. Vakil shared his experience of visiting Pune and noticing the glaring mismatch
of demand and supply in the market.

In comparison, today, with reasonable political stability, adequate liquidity in the markets and with inflation under
control, a lot of development in terms of housing and infrastructure was being seen all over the country in general and in Mumbai in particular.

Vakil then touched upon the main players in the Real Estates, RERA and REIT. The Real Estate (Regulation and Development) Act, 2016 is an Act of the Parliament of India which sought to protect home-buyers as well as help boost investments in the real estate industry. Today, apart from West Bengal, 90 per cent states have adopted RERA, he said, however there was an urgent need of monitoring and regulation.

A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. Vakil explained how people wanted to buy ready flats as there was no GST on ready flats as opposed to the ones being constructed; that was the shift in demand.

Demonetization had also had its effects on real estate. According to Vakil, the trend of EMIs led to the difference between people renting and people buying houses. After the three tsunamis, said Vakil, there was again a fall in demand for housing. He attributed this trend towards the waitand- drop situation where buyers in anticipation of a fall in prices tomorrow, tend to wait to invest.

The buyers often sat on the fence mainly due to their lack of confidence in investing in property, an anticipation in the fall of prices and last but not least, interest rates. Foreign investment too was cautious along the same lines as many found they had burnt their fingers dipping into Mumbai real estate investment, said Vakil.

Having briefly discussed the country’s past and the present, Vakil took everyone back to the future. Talking about smart cities, he said, with 40 per cent population living in urban settlements, smart cities would be of no help without smart infrastructure. Therefore, it was necessary to generate employment and improve the quality of life. He referenced the McKinsey Urbanization Reports during his talk. The demand for REIT would eventually increase, he said, especially from IT sectors. It would be more like a mutual fund in rental properties and would soon be an income-earning asset. There was a major change in which projects funded with REIT were falling in place.

The RERA, despite its hardships , was beginning to provide a level playing field as it had increased transparency. If the act worked as planned, it would increase domestic and foreign capital. Vakil also saw a Trump Effect where buyers were now insisting on a Rupee Contract rather than a Dollar Contract.

Lastly, Vakil touched upon the everincreasing use of technology in housing and investment. With advanced knowledge in science and technology, engineers could now show us the view from a 22 floor building even before the building was constructed. With the use of drones, satellite technology, geotagging, 3D printing of buildings, the world was headed to a better place in creating a virtual reality.

Addressing a question on REIT, Vakil exclaimed that it was saddening that REIT was not happening in India unlike abroad; he spoke on REIT for investment in infrastructure as against housing space.

About the status of the Bombay Rent Act, Vakil answered that it provided for the redevelopment of the building and extra FSI after rehousing but the tenants had to collectively be part of it. Vakil also said that, according to one statistic, there are about 88 thousand billionaires in India and 10 thousand apartments with a price minimum of Rs. 5 crore. How many of the billionaires would buy these, he asked. There are no fresh purchasers in the market.

One of the members drew attention to the ever-increasing prices of housing and feared that the lower strata population will be pushed to the periphery. But Vakil said he was pretty sure that smart cities, done with great planning, took into consideration everybody and the issue of rental houses was being addressed.

Vakil believed that there was minimum corruption at the Centre and hoped for it to percolate further. He pressed on the need for empirical planning to face the threat to affordable housing.