Infra status won’t drop prices, but will increase housing supply

Companies will be able to access working capital with lesser processes due to the new infrastructure categorisation for affordable housing, says Rahul Nahar, Founder of XRBIA Developers Ltd.

Is the ‘Infra’ status for the affordable housing segment adequate to spur investments by the private sector? What outcomes do you anticipate through this government emphasis?
With infrastructure, we expect the affordable housing segment to develop a new degree of velocity because the cost of capital is going to reduce and lenders are going to be motivated to invest money in this sector. Likewise, the tax status for development is beneficial with the infrastructure status.

Is it a feasible proposition now for infrastructure majors to get into the affordable housing sector? And vice-versa, is it lucrative enough for real estate majors to move into the affordable housing sector to leverage the infra status and incentives?
The tax benefits that were being given to affordable housing companies were already at their peak level and so getting into the new infrastructure (sector) does not change the beneficial tax regime of the affordable housing companies. However, companies will be able to access working capital with lesser processes due to the new infrastructure categorisation.

How does infra status translate into incentives, special dispensation and bankability? What additional incentives would accrue to investors getting into this infra status-driven affordable housing initiative?
The government has attacked the problem at both ends by allowing producers to access easier and cheaper capital which is going to increase supply in this sector. And from the customer’s end, the government has offered a subsidy to consumers of Rs 2.43 lakh through the PMAY (Pradhan Mantri Awas Yojana) scheme that is going to motivate them to buy housing through this programme quickly. By attacking issues from both supply and demand side, it is really going to accelerate this sector.

Leading public sector banks, like State Bank of India, have expressed unwillingness to finance infra projects that are HAM (hybrid annuity models) based. What will be the repercussions of this negative banking sentiment? What is the way out for infra developers seeking banking finance?
The affordable housing infrastructure strategy is the exact opposite of the hybrid annuity model strategy. Roads based on annuity are heavily capitalised and it can be monetised on a 10-, 20-, 30-year period, but the housing sector is structured, like a trading business. The housing sector does not need large capital but requires working capital. The banks like shorter tenure loans and therefore it is very different from HAM.

Is a debt-to-equity recast for infra projects the solution? Is it a practical expectation of infra developers putting up equity stake of around 40 per cent as suggested by SBI (as against the currently existing 20 to 25 per cent)? If not, to what extent can infra majors be expected to finance upfront the equity side of infra projects?
The debt-to-equity ratios are going to be low because it’s more of a trading business than a capital investment business. One needs lesser amounts of money and we rotate faster.

How can aspects of uncertainty of recovering funds lent for infra projects be mitigated to inspire banking sector confidence in infra projects? How can banks be assured of repayment of the entire finance and interest deployed for infra projects?
Here the risk is segregated into smaller parts; for instance, a large project like building a road could be delayed if there is a political or land acquisition problem. Whereas in the housing sector, 20,000 houses can be built with lent money. So, the issues, if any, are restricted to smaller topics, hence risks are very limited for banks.

How will the infra tag accorded to affordable housing spur the concept of ‘Housing for all’? How will this impact realty pricing in the current fiscal and over the next four years?
The infra tag is not going to drop the prices of housing but it is going to increase the supply. Usually when supply comes in, prices drop, but here the demand gap is so large, that we don’t see increased supply resulting in dropped prices. In affordable housing, margins are as low as 20 per cent; hence it is difficult to imagine that prices will drop.