Track2Realty Exclusive-Yearly Analysis: To say that Indian real estate is standing on a shaky foundation would be like stating the obvious. Pressure is increasingly building on Indian developers. High mortgage rates and the slowest economic growth in nearly a decade are taking a toll on demand. Costs are rising, too. The Price of steel and concrete has jumped to double digit. The pipeline of cash has already dried up.
During the boom from 2006 to 2009, companies gorged on domestic debt. Bank credit to developers was growing at 47% in 2008 and 2009. Private equity and foreign direct investment also poured about $8 billion into the sector during 2010-2011. But that has all changed in the year 2012. Even though Finance Minister P Chidambaram has intervened, it looks like too little and too late for a sector standing against gigantic challenges all around. Bank lending to developers has dried and foreign direct investment in the sector fell to rock bottom in the year 2012.
A long-term bet on India’s housing and commercial property demand is still compelling, given the large potential for urbanization. Only 30 per cent of India’s massive population lives in cities, according to government estimates, and that is likely to increase by a third by 2030. In the meantime, though, investors are wary of developers constructed on shaky ground, and desperate times are leading Indian realty to unprecedented restructuring.
Sunil Dahiya, Sr Vice President of industry body NAREDCO endorses the sentiments when he says lot of speculation was being made that some players will collapse which did not happen in 2012 which is a good sign. It works like a pack of cards; it is not like if one falls down then others will not get affected.
“I feel relieved in 2012 and 2013 looks brighter. Second point what I have learnt was that every developer has to find his niche into what he is doing better. There are certain developers who have found a very good niche in doing the affordable category. Now is the time we need to find our niches. If one tries to do cross breeding of all segments, I think that is where the occupational capabilities will differ so these are two learning that I have seen,” says Dahiya.
…to be continued
