Real estate sector scenario in India – slowdown is the buzz word
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.
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This ‘Tsunami’ of property prices has started in the USA by ’sub prime mortgage/credit crisis’, which has profoundly shaken world’s financial system. The irresponsible bankers have simply lost their touch with reality. Every day, they were speculating and trading with billions and trillions of ‘bu-bu’ indexes - pure abstraction - imagination. Finally, their totally artificially invented financial derivatives have showed their ‘dark side’, if abused too much by rough traders, who were encouraged by bank bosses, who wanted ‘high bonus rewards’.
Financial crisis has spread all over the world in a quite short time. It was just a bad estimation, that much more than $500 billion, better to say $1000 billion or even more is going to be pumped into the world financial system by national banks, sovereign founds, other cash rich institutions, just to prevent total colapse of the world financial system.
Property prices has fallen the most in the USA and prices still continue to fall.
After many years of constantly growing property prices in UK, the prices has turned the opposite way for the last few months. Experts expect 25% fall in the next 2 years. Still, we could call this move just ‘a correction’ - a very normal effect after many years of a very high growth.
However, maybe this fall of property prices in UK is going to be a bit deeper and longer, than it was predicted, because of some very unusual events on mortgage market in UK in this moment.
What did happen yesterday in Britain?
HSBC bank (in the form of its branch ‘FIRST Direct’) pulled out of mortgage market. HSBC, Britain’s biggest bank announced, yesterday, that it was to stop offering mortgages to any new customers.
How all this financial events are going to effect property market in India? I think, that in a very predictable way. Prices are going to fall.
So, if you intend to buy a property: you have nothing to lose, if you wait and observe the market carefully. There are going to be an outstanding opportunities for good property investments in quite many countries.
MMRDA had recently put five plots on auctions in the G-Block of the Bandra-Kurla Complex, Comprising of 2 commercial and 2 residential and a club house. Out of these 5 plots Of these
three plots, the authority sold one commercial plot, spanning 24,000 square metre, to Jet Airways for Rs826 crore. This implies a selling price of approximately Rs32,000 per square feet (Rs314,467 per square metre) for the commercial plot. This selling price is at a 31.7% discount
to the Wadhwa Builders’ bid of Rs46,806 per square feet (or Rs503,636 per square metre). It is also interesting to note that Jet Airways was the sole bidder for the commercial plot in the recent auction.
Is correction begun in Real Estate?
Forbes Magazine pronounced HSBC as the world’s largest company, which overtook Citigroup, after the world credit crunch.
By HSBC’s activities in mortgage sector we could really expect further decline of property prices worldwide.
A fresh property financing case from UK, which clearly speaks for itself.
Ian C., with yearly earning good six figure sum, wanted to remortgage his house(£1.4m) to another house(£1.3m) and also to add another £100.000 in cash to lower the loan even more. Despite earning of 50% of the property, he was refused by Nationwide Building Society.
In other words, the financial situation are becoming very serious and the property prices…are going down…