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Real Estate India- Can it Over Power Recession
Most of the real estate sectors players have missed their target groups and concentrated on premium segment, the interest has gone from single digit to double digit. The growth in realty sector is driven by India IT/ ITES sector. India is a fast developing country with limited infrastructure and abundant natural resources. Our domestic consumption levels are very high, hence our export potential is negligible. But in view of globalisation we are part of global village, and the recent economic tremors also affected our country. Slowly and steadily all industrialised countries accepted the recession factor and started adjusting themselves to come out of the recession if not earlier but sooner. Coming to our own country it is the real estate, the second largest industry in India after agriculture, is the most affected one. Most of the projects in hand have come to a grinding halt. India is still a country of small towns and villages, so the concentration of builders in and around big cities has contributed to over supply of costly and high-end products.
If we analyse the reasons for failure of Realty sector, for me it appears that it failed because of its own actions, and its failure to properly assess the situation like taking middle class into account and to build houses to suit their needs. The recent economic meltdown has forced them to review their views. Most of the real estate sectors players have missed their target groups and concentrated on premium segment, the interest has gone from single digit to double digit. The growth in realty sector is driven by India IT/ ITES sector. The IT/ITES sector have increased the salaries of their employees by 21% but at present these companies have frozen the salaries and also shown pink slips to their employees. This has forced the IT employees to cancel their bookings and forego whatever deposit made by them to the builders. The recession in the west has also affected most of the Indian Banks which are having branches in west and they have forced them to control their operations. Foreign players have backed out of their deals which they entered with Indian real estate players during good days, which has resulted in flow of un-preceded fall in FDI. Because of lack of uniformity of land laws, slowdown and approval delays due to red-tapism the developers missed to complete their projects within the boom period. The tightening of interest rates, coupled with the economic slowdown, has affected the industry mostly. The funds of the most players were struck in unfinished projects. Because of strong FDI restrictions, FIIs invested in realty firms through the capital markets, but since the start of the downturn, they sold their investments at dirt cheap prices. This affected the mood of the market players and contributed much to the fall.
As per the CRISIL research 2008-2010 the supply of residential apartments is to the tune 727 million sq ft whereas the demand is only 614 million sq ft resulting in the oversupply, which is based on optimum levels, as per the industry sources the oversupply is 35-40%. The oversupply is more in cities like Hyderabad, Bangalore which have seen boom period in the recent past due to information technology and subsequent developments in the same sector due to recession around the world. After the meltdown in the economy housing sector has seen many borrowers flying away from it thinking that investment in housing is not a wise investment in view of the recession and other consequential problems. Recently Reserve Bank of India announced several measures to induce banks to reduce interest rates for housing loans and increase flow of funds to the sagging real estate sector, which would provide “comfort” to the realty firms. Many expected that the RBI measures would provide comfort level to the realty firms, which were facing credit crunch. In order to encourage the banks to lend to the housing sector, RBI said housing loans up to Rs 30 lakh would be classified as “priority sector” advances.
The industry has expected more tax incentives and tax breaks to affordable housing to middle and lower middle class borrowers. According to Dr Devinder Gupta CEO CENTURY 21 India, the medium and small players should go to tier -two and small towns for affordable houses and office space thereby to attract common man to invest. The number of residential transactions went up 12-15% for the quarter ended March 31, 2009, over the previous one. DLF, India’s largest realty player, managed to sell all 1,400 apartments in its upcoming project in West Delhi within 24 hours at a discounted price, says Rajeev Talwar, group executive director, DLF. Unitech, which launched two of its affordable projects last month in Delhi NCR and Chennai, too saw an enthusiastic buyer response. The developer sold off 750 apartments in Uniworld Garden II in 45 days of its launch. Another project, Ananda, launched in Chennai and priced at Rs 20 lakh onwards saw 500 apartments being sold off in 10 days, claims the Unitech official.
In Mumbai, more than 2,500 apartments have been sold in the last 40 days, according to Niranjan Hiranandani , MD , Hiranandani Developers. Reflecting this market movement, banks too confirmed increased activity in the home loan segment. The need of the hour is low cost housing only then builder can survive, because the demand is more as compare to high end products. The prices should stabilize, and the sector should attract more customers then only we can see survival of the fittest in the realty sector.
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