Liquidity Crisis Affecting Indian Realty

October 8, 2008	(1 votes, average: 1 out of 5)  Loading ...
Print This Story   Email This Story Subscribe Newsletter

The global financial crisis may increase the real estate prices in the next couple of years, according to Lalit Kumar Jain, President, Promoters and Builders Association of Pune (PBAP). Talking at the PBAP exhibition, Jain noted that liquidity is bothering developers as most banks were not lending money to most developers even for construction. He pointed out that this had severely affected cash flows and the only source remaining was customers. Jain also pointed out that the panic button pressed by the Reserve Bank of India to control inflation and reduce growth seemed farfetched. “The biased approach of the bank towards real estate is unwarranted and unjust. Making home loan costlier is only creating resentment among urban population,” he said. He noted that instead of increasing the supply of residential tenements through proactive policies, the Central and State Governments were making tenements costlier by introducing various taxes (37 per cent cumulative) and levies as well as interest on project loans, pushing developers to borrow from market or costly FDIs, ultimately increasing cost of tenement.

Jain said scarcity of skilled labour and recent developments to discourage outside labourers have also resulted in delays and increase in construction costs, 60 per cent year-on-year on labour cost. The increasing material costs (barring small seasonal corrections) had made construction costs go up almost 40 per cent year-on-year. He noted that during the past two years, interest rate had gone up to touch 11.75 per cent to 12.5 per cent as compared to 7 to 7.5 per cent offered by banks two years ago. Due to the increase in rate of interest, buying capacity has been compromised and this was another reason for the slack in the market. He said few markets, especially the metro cities, were operated by investors and underwriters.

Regarding the response to the exhibition, Jain said about 90 builders were participating and were offering customers a rate of interest of 9.5 per cent for loans up to Rs 30 lakh and 10 per cent for above Rs 30 lakh. He noted that this rate of interest would be applicable for a period of two years.

News Published Under:   Pune |

Comments