Real estate market in India needs a helping hand

For a majority of investment-conscious working class individuals in India, buying stock in real estate is the most assured bang for the buck, however, the dream run is heading for an end. Different micro-markets in the nation now suffer from low sales volume and rising inventories, which is crippling the real estate sector significantly.

According to NAREDCO (the real estate body of the nation) with the fall of rupee to 69 against dollar, importing of building construction materials will lead to a pocket crunch. In such a case, for developers, domestically manufactured goods can only cut the ticket to reduced cost of production.

• Keeping the FDI investments within bounds for projects having an area of 50000 sq meter only, small developers are left with limited opportunity to raise funds. The poor financial condition of small developers and turning down of banks to fund realty projects due to lack of approvals and clearance has further added to their woes.

• The high housing loan rates, thanks to the central bank of the nation, has contributed greatly to deteriorate the situation of the realty market. Due to high housing loan rates, investors do not feel encouraged to take loan from banks resulting in a significant dip in the frequency of real estate investments in the country.

• Investing in real estate has become a fad for people with funds, since a preconceived notion exists that this asset class zone yields not less 20-25% return every year. However, if a builder sells around 3000 flats out of which 70% of them are likely to be put to market after few years, that will not be counted as sales.

• According to experts, with the stock-market losing its speed, end-users have started to take-off from the realty market in the current scenario. In comparison to the last two years, when hike in property rates brought forth 30%-40% return on investments, the coming days will not harvest more than 15%-20%.

• Going by the report of the Ministry of Housing and Urban Poverty Alleviation, the urban areas exhibit around 11.09 million vacant homes. The sole reason being sellers holding out such plots with the hope that capital values will be stacking up in future, whereas for the home buyers the prices are too elevated. Quite often developers use the booking amount to buy another plot, and buyers stop paying until the construction reaches to a certain stage. This triggers the cash-flow crisis.

• With rupee taking a nose dive against dollar, NRI investments in the country has taken a dip. This is due to the reason that foreign investors will have to invest in rupee, instead of dollars, resulting in a huge outflow of cash. Such an unfavorable condition has discouraged NRI investors significantly.

• The present situation is pointing towards the dreaded consequences of real estate bubble and overheated economy. As a result, the central bank has implemented a cutback on the total amount allotted for real estate loans, eventually leading to heightened prices of home and office rentals.

• Increasing cost of construction, raw materials and labor costs, hike in service tax rates, and large number speculative deals et al, have resulted in stoking the price of property rates in the India real estate market. If not dealt with, such issues will take a toll on the real estate sector of the nation significantly.