The first quarter of this fiscal would be a difficult one for the real estate sector. Many of the big players in metropolitan cities have had to borrow funds to pay their installments on loans due to banks by the end of March 2011. In smaller cities and towns, the situation is not any better. Realtors who had overerated actual end user demand for housing, and had received advances from pioneers and investors are coming under pressure to deliver promised projects to enable them to cash in on their investments.
Projects are not moving ahead because of lack of cash, and banks are not falling over themselves to lend money to the sector any longer – especially as the RBI has restricted such flows and had asked banks to be cautious of offering out too much money to real estate companies. What does all this mean and how are these indications going to affect the person who wants to invest in real estate? Firstly, potential investors should be very, very careful of where they invest in. In the absence of a real estate regulatory body in place the old statement of requirement , or buyers beware is more relevant today than ever before. Developers are facing a double setback this year.
Even if their projects come up, the support of foundations and substructures promised by government agencies such as power, water , sewage, and above all, road and transport connectivity – is just not happening on time, so projects may be finished, painted and polished, but may not be livable . The high cost of borrowing money is also hitting developers and with banks becoming cautious of extending credit to the sector, many developers are now looking towards private equity and similar sources of finance, many of which are much more expensive than bank funds. Apart from expenses, many financiers are also more wary about the money they lend.
Since the home buying continues at its full pace even after an impending rate hike by Reserve Bank of India due to which there have been a continuous rise in property prices, the realty industry now is completely free from tensions, i.e, has shrugged off all its worries. Due to the still high food prices, many economists expect a fifth round of policy rate hikes towards the end of this month. Most probably, RBI will unveil its first-ever mid-quarter policy review on September 16.
However, the developers are still cool and confident for the residential sales even after a possibility of rate hikes by RBI are almost next week. The chairman of CREDAI, Confederation of Real Estate Developers’ Associations of India, Mr. Kumar Gera say that since the buyers fear of price rise in future, therefore they will not stop investing right now. These days an investor does not see the price if he can afford it, he added. Therefore, this price hike won’t make much difference to the market.
Ahmedabad happens to be one of the 11 countries for which the reserve bank of India would prepare one index for commercial and one for residential properties. This is done to curtail speculations and expected realty bubble burst in the coming years. The RBI report on asset price monitoring system (ASMS) advised to formulate these indices two months back.
Many different countries such as Canada, France, us refer to these indices for realty prices.
The report says, RBI should start compiling a realty index and update it every quarter. To begin with, the report has proposed Mumbai and Delhi where property prices have skyrocketed to record levels. After these cities RBI would add 10 other cities which include Greater Chandigarh, Hyderabad, Chennai, Bhubaneswar, Pune, Jaipur, Kolkata, Lucknow, Bangalore and Bhopal.
The real estate price index once devised would become the primary index that could be perused by investors to gauge the performance of companies that are listed in the realty sector. The index can also help the investor analyze how real estate is performed in comparison to stocks and bonds. It can also provide information on the risk involved in a particular investment and returns that can be achieved from it.
The ASMS report has defined the deficiencies this indices would help overcome.
April 20, 2010
A current report by JLLM, Jones Lang LaSalle Meghraj revealed the fact that since sales are increasing and investor sentiment s are being strengthen, residential housing prices in Mumbai are expected to move further upside.
According to the report, demand for commercial spaces is improving and this growth is likely to continue till the end of 2010. As far as leases and outright purchases are concerned, this will result into a large number of transactions.
The supply is coming in all segments of residential, from luxury to mass housing. For the next year, in order to keep the markets going, both retail and commercial segments are also yielding enough supply.
The report also said that since many developers are now going for public funding, a large number of activities on the residential property front, owing to the strong demand will take place.
Besides, in order to boost accessibility more locations within the city and reduce commuting time, infrastructure projects such as the monorail, metro, and flyovers are being put in place.
Swami said that considering the pace at which these measures are implemented, in the medium to long-term this is good news for the realty sector. He also added that residential realty is likely to continue its demand growth, and thus will be on the priority list of most builders.