Realty sector stress to continue until general elections get over
Dec 06 2013
Interview | Niranajan Hiranandani, Managing Director, Hiranandani Group of Companies
Group MD talks about the present condition of the real estate industry, the issues plaguing it and what to expect in the coming days. Excerpts:
The real estate sector is witnessing a significant slowdown? What are the reasons? Is the industry suffering because of too much of speculative investment?
The slowdown in the real estate sector is due to the overall slowdown in the economy. Both customers and investors are cautious about investing in the sector due to several factors like high inflation, high interest rates on home loans and an uncertain global economy, among others.
The overall sentiment is negative, which is why the sales have reduced. Demand is still there, but the impact on sales is due to the uncertain economic condition. While the affordable segment is performing well, the luxury segment is under pressure. Most of the inventory is in the luxury segment. However, developers cannot be constructing only affordable houses at all locations. Real estate has a strong linkage with the economic growth of a country and any sign of slowdown in the domestic economy can have a cascading impact on the health of the realty market.
How has been the investment scenario in the sector and what are the challenges developers are facing?
Getting funds for projects is definitely an issue, as banks are very cautious about lending. Funding is available only for projects and not for land. So developers have to either pay on their own or borrow from private lenders at higher rates. Developers are managing with funds available by selling apartments. In many cases there are pre-launch offers and they are able to raise funds through the bookings of these properties. The main challenge is to get project approvals. The delay in permission continues, which is having a cascading effect on project completion and costs. Overall the market conditions are tight. The liquidity crunch is getting worse and beginning to hurt every stakeholder, including the buyer. There is a serious need for better consistency and alignment in some of government’s policies to revive growth.
We want the government to grant us industry status. The Union government needs to take urgent steps to help us get single-window clearance for projects across the country. There is an acute shortage of trained manpower in the sector. The real estate sector needs government support to upgrade technology.
Prices have already corrected in some Mumbai locations? Do you foresee a further decline in prices going ahead?
Price correction has happened depending on location and the holding power of developers, among others. In most cases if the cash component is higher, developers are negotiating and are offering some upfront discounts. In some cases, they are offering freebies. However, going forward there is not much scope of price correction as the cost of projects have increased significantly due to high raw material cost, labour cost, higher taxes and land cost among others. Even if the developers want, it is difficult for them to reduce prices after a point.
While the prices are on a downtrend, why are actual buyers staying away from the market?
Actual buyers are cautious as they are waiting and watching the market. With high inflation, insecurity of jobs, high interest rates on housing loans, they are holding back their decisions to purchase a property, as they are left with less discretionary amount to be spent. However, there is huge demand for affordable housing and things should improve going ahead. Markets with lower price points are performing slightly better compared with the cities with higher price points. A buyer will purchase only when he can afford it.
n Will 2014 be a better year for the realty sector?
The situation should improve after the elections. Till then, the stress would continue in the near future as there is no trigger for revival in the sector.
There has been a slowdown in sales and project launches across most cities. What is your view and when do you see this scenario changing?
Slowdown in project launches will help clear inventory and real estate demand is expected to revive in the long term. Demand, however, is likely to remain subdued over the initial part of 2014, as the market continues to bottom out against the
backdrop of a sluggish
economy and high inflation.