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« Govt keen on 49 pc FDI in Multi-Brand Retail | Home | The Face of Real Estate India during Economic Recession »

Real Estate India Trembles in Market Quake

It has been a year of steep decline for the real estate sector in India. It remains one of the worst hit by the domestic credit squeeze and the global financial meltdown. To an extent, the problem is reflected on the BSE Realty Index, which is now down 82% from its January peak. High inflation and the resultant credit tightening had a crippling effect on the sector. When inflation touched double digits in June this year, the realty index fell by 65% in that month alone. Last Friday, the index closed at 2524.89 points, from its January 8 high of 13848.09. Comparatively, the Sensex lost only 53% during the period.

Analysts believe that funding has become a major issue for the realty sector. “Banks have tightened liquidity for the real estate sector. With ECB banned for over a year, acquiring funds has become really difficult,” said a Mumbai-based analyst. But Rohtas Goel, chairman, Omaxe Ltd, is putting up a brave face. He flatly denies any funding problem for his projects. “We are funding our projects through internal accruals and bank loans”, said Goel. While most companies say banks are delaying loans even after sanctioning them, Goel says banks have made full disbursals for Omaxe’s projects.

Others like Anil Kumar, CEO, Ansal API, while admitting that funding has become difficult than before, said, banks are lending to the sector, though they are taking more time to disburse the funds. “Bank loans have become more expensive. It has increased by around 300 basis points in recent months from around 12% before to 15% now”, said Kumar.

This has dampened the demand for apartments, forcing realty firms to put on hold many expansion projects. Both Kumar and Goel said they are consolidating their existing projects than thinking of expanding. They are not buying any land now, though they have no plans to sell off their existing land banks. Kumar, however, said that he was getting offers from smaller developers to buy out their land. Ansal API is also ensuring that there are consumers for the projects it is developing.

An analyst aptly pointed out, “Even if firms try to sell out their land banks, where is the buyer?” He added in the present scenario source of funding for the realty sector is rapidly drying up. Funding from private equity firms has become scarce and expensive because of the global financial meltdown.

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