Real Estate Developers warns consumers of dire consequences

April 9, 2009	(2 votes, average: 4.5 out of 5)  Loading ...
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At a time when real estate prices seem to be in free-fall, many potential home-buyers are sitting on the fence in the hope that prices will drop still further. Real estate developers are now warning that if they wait too long, there could be dire consequences for a number of support industries, millions of unskilled labourers and the wider economy itself.

Since March 2008, when the first impact of the U.S. sub-prime crisis and the global economic slowdown began to make itself felt in the Indian housing market, prices and offtake have both fallen by at least 35 per cent, according to Prakash Challa, president of the state branch of the Confederation of Real Estate Developers’ Association of India (CREDAI).

He warned that the confused consumer could push the market too far. “When they hear that prices have fallen over 30 per cent, that interest rates are likely to fall further, they think they are better off waiting,” he said. However, developers are already operating with minimal margins and would be forced to delay or pull out of projects if the market falls further, he said.

With employees in the IT industry having formed 65 to 70 per cent of the consumers during the growth phase of the last three years, the housing market has been badly hit by the tech slowdown. “They don’t know if they will get their increments or if they will even hold on to their jobs. So there is a crisis of confidence about borrowing even if the interest rates do fall further… It is all causing a fear psychosis.”

Mr. Challa also blamed the Union Finance Ministry and the Reserve Bank of India for adding to the real estate sector’s problems. In issuing guidelines designed to reduce the exposure of banks to the real estate sector, they have made it difficult for the industry to access funding at reasonable costs, he said.

Data showed that the total public sector bank exposure to the sector over the last two years, including the huge chunk of housing loans to the end consumer, loans to housing finance institutions and the National Housing Board, amounted to around Rs. 2 lakh crore. If the exposure to developers alone was taken, the figure would not amount to more than 4 to 6 per cent of total lendable funds, he said. In contrast, in the U.S. and Europe, banks have 40 to 60 per cent exposure to the real estate sector, he said.

In such a situation, “why are they talking about the need to curtail the industry? This is very myopic thinking by the RBI and the Finance Ministry,” said Mr. Challa.

He emphasised that apart from the developers themselves, 200 other downstream industries would suffer.

Job losses would also be huge, as the construction industry is the largest employer of unskilled labour after the agricultural sector. In Chennai and its suburbs alone, Mr. Challa estimates that well over 2.5 lakh workers have already lost their jobs since March 2008. Most of these are migrant workers who have been forced to return to their hometowns. “When Jet Airways lays off 1,900 workers, there is so much hype. But when 10,000 unskilled workers go off the radar, everyone is silent,” he said.

Supporting the housing sector at this stage could be vital to an economic recovery, said Mr. Challa, rueing the fact that support for the residential real estate industry was not part of the government’s stimulus package.

CREDAI has proposed that the state government release some of its land holdings in the city for public-private partnership projects with a consortium of developers to develop low and middle-income housing. “TNHB [Tamil Nadu Housing Board] alone is sitting on 300 acres of land… They have more than 100 acres within the city,” he said. A minimum of 10,000 units could be built in the city, ranging between 300 and 1,000 sq. ft in size. Along with basic construction costs of Rs. 1,200 per sq.ft, Mr. Challa proposed that the government could fix its own prices to sell or rent the housing.

News Published Under:   Real Estate India, Real Estate Developers |

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