Track2Realty Exclusive Yearly Analysis: The cash in the industry is fast drying up. Not because banks are reluctant to finance projects but because investors are now shying away as realtors are not being able to deliver on the high returns they promised to investors.
To keep their investors happy so that the fund-flow continues, the developer takes the easy route of hiking prices every few months. But since genuine buyers can’t afford the prevailing rates, builders are stuck with loads of new homes waiting to be sold.
Even the flow of money from foreign direct investment has dried down and there is a spurt in non-performing assets in the sector according to Reserve Bank data. The only way ahead is to break this builder cartel and ensure that it stops diverting the money received from one project into another project or purchase of land.
Renu Sud Karnad, Managing Director of HDFC rather wonders how India is among the few countries where property prices have actually risen after the recession of 2008 while major economies such as the US, UK and even China have seen an absolute reduction in property prices..
“The need to reduce prices is more in metros. And any effort to reduce housing prices and revive the realty industry will surely help in kick-starting the economy as the sector is linked with several other sectors. We can only suggest and coax developers to reduce prices, we cannot force them. In the past, developers have cut prices and even now some are doing it indirectly through various schemes,” she says.
“There is no demand, there are no fundamentals to these prices. No efficient market can maintain more than eight months of inventory,” says Pankaj Kapoor.
There appears to be little hope for prospective home buyers in a market which analysts rate as too expensive in the urban centres of Delhi and Mumbai but that is still being driven by widespread expectations for hefty capital gains. Developers, who had reaped profits off a booming market, say relatively high borrowing costs and an average 30 per cent rise in the cost of cement, steel and labour over the last few years, stops them from lowering prices.
In addition, some analysts say, speculators with deep pockets act as a buffer, preventing prices from falling or even levelling off and also shutting out many buyers who just need a home.
…to be continued