By: Sachin Sandhir, Managing Director, RICS, South Asia
Track2Realty: Across micro-markets, investor sentiment has been impacted due to inflationary pressures and rising interest rates through the course of 2012, which have only come down marginally with a few policy revisions by the apex bank in the second half of the year.
Slower GDP growth rate projections; shortage to the tune of 85% in real estate and construction professionals available today, as highlighted by a recent RICS research and high debt burden of real estate developers have also impacted investor confidence in the residential sector.
Consumer sentiment has also ‘taken a beating’ with interest rates rising and the cost of home loans becoming dearer, coupled with continued price escalations. Even the festive season was unable to boost buyer sentiment, considering offers put forth by developers were not considered viable by buyers, who had put their purchase decisions on hold earlier.
Consequently, oversupply has set into the residential market in areas such as Mumbai and Delhi NCR, where prices have once again exceeded their peaks. While, markets in the South seem to be relatively stable. Also, it is the mid and affordable housing segments that are impacted more while the luxury segment remains fairly stable.
Therefore, the decision by the RBI to allow entities such as the National Housing Bank (NHB) and Housing Finance Companies (HFCs) to be included as eligible borrowers for financing low cost housing projects is a welcome move.
Considering External Commercial Borrowings (ECB) are considered attractive, given the cost of capital is lower than that of domestic borrowings – it could be a preferred source of finance for developers and could help address some of the liquidity constraints prevailing in the sector and give a much needed boost to affordable housing.
Given the overall market conditions, the realty sector is once again in the midst of a liquidity crisis – stringent lending norms to the sector have curtailed capital funds, with alternative sources of financing also unable to provide much needed respite to developers.
With rising interest rates, inputs costs and pressurized margins, it seems unlikely that there will be any drastic price rationalization for existing housing stock. However, for new housing stock coming into the market, we may see some level of correction.
