The unending euphoria of real estate sector in India witnessed during the last few years is finally starting showing signs of ebbing. The talks of new malls, complexes, residential projects being built are all now being kept under bags.
There is an overall slowdown in demand across India as has been experienced by industry players. Property prices and rentals are correcting which have led to the erosion in market capitalisation of many listed players like DLF and Unitech.
The slowdown is aided by the fall in stock markets as wealth creation does not happen and there is lack of capital among investors to invest in real estate projects. Also, to adjust their share market losses, many investors are forced to sell off their real estate properties.
Other factors that have led to the slowdown is the increase in interest rates leading to higher costs. Also income levels have not risen in proportion to the increase in property prices thus forcing many potential buyers out of the market.
Also with rising input costs of steel, iron and building material, it has become unviable for builders to construct properties at agreed prices. As a result, there may be a delay in project completion leading to financial constraints.
Many residential buyers are waiting a price correction before buying a property, which can affect development plans of builders.
Also with IT industry continuously experiencing a slowdown, there may be further constraints on residential as well as commercial demand since IT/ITES segment accounts for 70% of the total commercial demand.
So real estate players may continue to face liquidity concerns in future due to rising costs and unfavourable stock market conditions for further capital raising.
Only those players who have achieved substantial revenues from past deals could expect to rise against the tide. But the scenario may get worsen if the upcoming properties are not sold off as it may lead to a financial crisis in the property market.