Decreasing sales and investors put developers at risk
Owing to sluggishness in the economy, many short-term realty investors have been evading timely payments to developers, since they are observing a reduced number of homebuyers, mainly in the suburbs.
Speculator-based market
Adding to it is the speculators, who tend to overprice the properties in areas where in the real estate demand is mostly a created one but those areas may take much longer time to be livable. Owing to economic slowdown, rising costs due to rupee fall and various market speculations, end-users seem to fear a loss in near future and have settled down in a ‘wait and watch mode’ before deciding to invest.
On the flip side, it seems to be a tough time for some of the developers, as property sales are slowing down while regular short-term investors, who buy many properties and sell them off within months, are also narrowing down. In some cases, such investors are asking builders for refunds. There are few cases in which the investors are even taking the developers to court. Some end-users have even cancelled their bookings.
Some real estate experts have also expressed a similar opinion about the issue. Navin Raheja, the president of National Real Estate Developers’ Council (NREDC) said that there has been a rise in number of defaulting short-term investors in the past few months.
Sluggish demand
Real estate market has not been witnessing apparent demand in the last few months, for which developers have been offering discounted rates to push sales. Not only has the new properties, even in resale market the number of sales reduced leading to slight fall in prices. As a result of this, the inventory level has been rising and buyers are worried whether to invest or not. And when buyers are not buying, investors start facing a cash-crunch which further tightens the cash-flow to developers.
All these are interrelated and are basically the effects of a cyclic issue which is likely to carry on for few more months. However at such a situation, the buyers actually gain. They can get properties at much lesser prices than the prices which persist when the market is doing well. Unfortunately many end-users fail to understand the context fearing to invest.
Around 50 to 60 percent of new housing units in the Dwarka-Manesar Expressway, Gurgaon and one third of homes in Noida-Greater Noida Expressway have been kept aside. A similar trend has been observed in some of the suburbs of Mumbai too.
Few developers sell projects only to buyers
In some cases, to avoid complications, developers are avoiding short-term investors from their new launches. They are running personal wealth-checks and asking for bank-statements and other details to identify potential investors before selling the properties.
