Real estate developers see further slump in demand and price correction due to RBI’s move to raise interest rate. Caught between slow demand and rising cost of capital and construction, developers are deferring launch of new projects. Some even fear that ongoing projects may get delayed.
Indiabulls’ group spokesperson Gagan Banga said, “Interest rate hike has dampened the sentiment in the real estate market, which will result in further slowdown. We see 5-15% price correction in the real estate sector in the next few months depending on the project and its location”.
Real estate market has been under pressure for the past six months with sales declining by up to 70% in several markets and prices declining by up to 20% in overheated pockets like Gurgaon, Greater Noida, Ghaziabad and Kundli in the national capital region and some Mumbai suburbs.
Cushman & Wakefield South Asia MD Sanjay Verma said, “There is no alternative to credit. Land transactions have dried up due to developers’ inability to bring funds. The fund-raising plans of developers have also changed and some have limited their expansion plans”.
Some developers, especially smaller ones, also fear that their project might get stuck due to unavailability of funds. The bank credit had already dried up for small developers and they now fear rising interest rate will further increase their borrowing cost from NBFCs or private moneylenders. With homeloan rates, likely to go up, the advance money received from customers too will dry up forcing them to slow the pace of project execution.
Unitech general manager (corporate planning & strategy) R Nagraju, however, feels that high borrowing cost will have only a marginal impact on company’s margins. He pointed out that a bigger concern is slackening demand.
Mr. Nagraju said, “We can’t do anything about high interest rates, but we need to stimulate demand by adapting our products suited to the current market needs. This could mean cutting down on frills and making houses more affordable to the end user” .
Unitech plans to launch houses at Rs 40 lakh in Gurgaon and at even lower price points in smaller cities, which it thinks will find large number of buyers. Similarly, Ansal Properties and Infrastructure (API) is tweaking its plans to suit the changing demand scenario.
API CEO Anil Kumar said, “We plan to launch plotted development projects soon, which still have a good demand. Besides, we would focus on execution of projects rather than launching more housing projects” .
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The recent fate of real estate stocks on the bourses mirrored the first signs of trouble ahead for the industry. Fuel price hike and lower IIP (Index of Industrial Production) numbers were recent setbacks to the sector and now with a 11.05% growth in WPI (wholesale price index), inflation has emerged as a serious threat to the sector, which has been cooling off in recent times.Market experts predict further softening of prices. “Even though prices have corrected by 10-20% and even beyond in some regions, it has not yet touched the bottom. It is advisable to wait till at least the year-end to buy homes,” says Jai Mavani, real estate practice head, KPMG.However, since many developers are holding onto prices and even operating as a cartel in some prime pockets like Mumbai, postponing purchase decisions may not really be a solution. Despite the fact that volumes have fallen sharply, established developers are clearly unwilling to drop prices. According to Kotak Institutional Equities’ research report, home prices in Mumbai market continue to rise since last October.For more view- realtydigest.blogspot.com
Most of builders delayed their projects because of shortage of funds.
Interest rates are increased and demand is less in this case they have to face problems in selling
But another point of view in the stock market level the real estate prices is going to be downfall on the daily basis which have to be shown the actual valuation of the real estate company in the market as on daily basis