Will 2012 carry forward gloom in the realty market? That is the question on everybody’s lips today and the sector seems to be only praying that the worst has been left behind in 2011. The real estate market went through a tough phase in the past year, with mounting unsold inventories and a rising debt burden, and is not very optimistic about the new year, considering the rough patch the economy has entered into.
Analysts, however, expect an improvement in terms of completion of existing projects as developers are likely to focus on execution and timely delivery during the new year.
The year 2011 witnessed high unsold inventories and delays in project execution due to continuous interest rate hikes by the Reserve Bank, forcing buyers to delay purchases, leading to a liquidity crunch for the developers, who also saw construction cost go up on account of increased raw material costs.
The realty industry is right now sitting on a debt pile of close to Rs.45,000 crore. This is despite the fact that the Reserve Bank had put in place a number of measures to prevent a bubble in the industry. Significantly, most of the amount is held by unlisted players and the advances are from NBFCs.
Statistics don’t seem to favour the sector either. Gross bank lending to the real estate sector grew by 11.6% between October, 2010, and October, 2011, compared to 15.7% during the year-ago period. Similarly, FDI flows into the sector witnessed a 26% decline on an annual basis.
In addition, regulatory bottlenecks like delays in project approvals and land acquisition-related uncertainties, especially in the major metros, resulted in unease among developers, forcing them to go slow on new launches.
Key market indicators, including absorption and new launches, are likely to remain low, given the execution concerns and the developers have no choice but to focus on execution and timely delivery in 2012 and not getting into new launches to avoid an inventory overhang.
