Prices of office spaces and residential apartments won’t come down during the pandemic unless taxes and registration costs are brought down, says G Ram Reddy, CREDAI chairman for Hyderabad.

construction section employ lakhs of migrant workers G Ram Reddy, Chairman, CREDAI Hyderabad
news Interview Monday, May 11, 2020 - 17:25

The construction sector in India has been in the news for all the wrong reasons in the last few days. The sector, which employs lakhs of migrant workers across the country, came under the scanner when the real estate lobby in Karnataka convinced the state government to stop special trains taking migrant workers back home. With growing conversation on forced labour and poor standards of living, and under pressure, the Karnataka government agreed to restart these trains. In Telangana meanwhile, the state government on May 8 stopped new train registration for migrant workers wanting to leave back to their home states. While one reason is that already lakhs of migrant workers have registered to go back home, the other reason, they said, is the ‘hope that many of them would find work within the state.’

Amid concerns of labour rights, the construction sector says they need the governments to help them survive the economic fallout of the pandemic. TNM caught up with G Ram Reddy, the chairman for Confederation of Real Estate Developers Associations of India (CREDAI) the apex body for real estate developers in the country. Ram says the lockdown and the ongoing migrant crisis have gravely impacted the sustainability of construction firms. To remain functional, many would require assistance from the state and central governments in the form of relaxed taxes and policy changes. Here are excerpts from the interview:

How has the lockdown impacted the construction sector in the state?

For construction firms, staying idle can prove costly. Our immediate worry is the safety and security of the people working with us. We are financially stressed for now as we have a lot of overheads, rent, and bank loans for which we have to pay the interest; we have to pay idle wages for permanent employees. Many firms can afford to keep paying staff only for the next three months. 

Almost all construction firms have taken loans with interest rates ranging from 12 to 15%. Since lockdown began, the real estate sector in the state is mostly powered by the sale of high rise apartments. Office spaces in the state have come to a near standstill. There are no fresh bookings.

Now that the work has resumed, what new measures have been adopted to contain the spread of COVID-19 at construction sites?

The Telangana government and CREDAI have laid down Standard Operating Procedures for construction firms. Namely, maintaining social distancing, making available proper sanitation facilities at construction sites. Works have now started at sites and people are working.

The workers are very anxious, it’s not like they will get work back in their hometowns. The workers are leaving because they are anxious. I spoke to a lot of them to try and understand their situation. We are also getting our workers screened by a doctor, if anyone is sick we ask them to stay in quarantine.

Many workers had complained about their salaries being cut to half, or not being paid during the lockdown despite the Centre saying the lockdown should be treated as a paid leave. How does the industry respond to these allegations?

Paying the total salary is very difficult. We are taking care of them by providing food three times a day. We are already in trouble with bank loans and interests. Every material cost has gone up. Paying the workers 100% is a challenge. From where will we pay when we don’t have income? Even if loans are sanctioned, the funds are not coming. If this (lockdown) was planned, we could have done something, but now our survival is a challenge. When work gets stopped like this for over 40 days, both labour and overhead costs go up.

Will the present issues faced by the sector force many developers to lower prices of office and residential apartments in the coming months?

Selling residential and office spaces at a lower price again is a challenge for the real estate sector. There will be desperation to sell and we are not prepared for it. Some desperation to lower prices will be there, but we are trying to make sales with pre-COVID-19 prices. But many buyers are expecting a discount which we can’t afford. The buyer sentiment is low right now.

What are your expectations from the state and central governments to help revive the sector?

We welcome the state government’s nod to open up construction activity and permission for the hardware stores to remain open. But we are hoping for a little more help from the state. We want the registration charges from the present 6% to be brought down to 2% to encourage buyers. It need not be a permanent relaxation, but if this is done for at least 2 years, it would really encourage more buyers and bring some revenue for the state. This would promote positive buying sentiment among home buyers.

The Centre should expand their focus from low-cost housing to include apartment housings. The three months moratorium on EMIs should be extended to one year. Some support is needed. We are expecting the Centre to increase the moratorium for another three months.

The Centre in 2019 has brought down Goods and Service Tax rates for under-construction flats from 12% to 5%. It has been over a year since this move was made, hasn’t this helped the sector free up some liquidity?

Not really. Earlier the rate of GST was 12% but we could avail Input Tax Credit (ITC). Now we have to pay only 5% but with no ITC. This becomes a problem when we hire a sub-contractor. The sub-contract is treated as a service and comes under the 18% GST slab and we can’t claim ITC on this. This added tax cost is passed on the buyer. This is double taxation; we are expecting a rollback.

With this pandemic, the banks should support us. Even if a firm has a pending loan they should allow the firm to borrow more. We have to support each other and the support is very much required. The migrant worker can only find work at a construction site if the developer has money.