Further price corrections may not be plausible – Part II
The growth prospects of the country’s economy continues to face strong challenges from weak industrial output, a depreciating currency and a stagnating policy environment, thereby hurting the sentiment of investor within the real estate industry.
The residential market across numerous micro markets would be further impacted by the recent ruling of RBI on loans disbursement under special schemes. With the market expected to remain sluggish in the short to medium term. During the April to June quarter, 22 of the 26 cities have witnessed a decline within home prices. Mumbai witnessed a drop of 0.5 per cent, Delhi witnessed 1.5 per cent while Hyderabad saw a 4.6 per cent cut within prices.
Amount of unsold inventories:
As per internationally renowned real estate rating and research firms, the figure of unsold inventory across the country is estimated to be around 700 million square feet. Delhi NCR’s unsold inventory was estimated to be around 277.31 million square feet, about 146.10 million square feet within the Mumbai Metropolitan Region while Bengaluru’s stock ups to roughly 88.68 million square feet.
Sales within Chennai, Delhi NCR, Hyderabad, Mumbai and Pune declined within the April-June quarter from the January-March quarter. During the April to June quarter sales of residential units declined by thirteen per cent in Delhi NCR, twelve per cent in Mumbai and seven per cent in Chennai.
Mismatch between supply and demand:
In accordance with a recent report compiled by renowned real estate consultants, during the past two years the absorption and launches of residential projects within the top seven cities of the country dropped by 37 per cent (2011-2012) and 23 per cent (2012-2013); thereby aggravating the structural problems within the realty sector.
Challenges faced by developers:
Realty developers have been caught in the vicious cycle of decelerating sales, ambitious expansions, hardening interest rates as well as weakening cash flows. However, unlike earlier occasions, this time around there is no bailout package for the sector, and alternative funding options too have dried up.
Challenges faced by financial institutions:
With an ever increasing number of non-performing assets, currency depreciation, tightened monetary policy and a volatile debt market, banks and other financial institutions alike are shying away from lending. Private equity funds too have been maintaining a distance from the Indian realty market. With some of the major real estate developers defaulting up on their debt repayments display the apparent aftermath of the dried-up fund scenario.
Political challenges:
The upcoming elections along with the general elections to be held in 2014 are characterized by a period of policy paralysis and they too have been adversely impacting the growth of the realty segment.
Conclusion:
With all these factors culminating into a deep ditch for real estate, further correction of prices in addition to the existing offers/freebies and discounts, may take place in extremely limited fashion between the developer and a prospective buyer.
