Monsoon has very little co-relation with the demand in the real estate sector
The data shows that the monsoon does not dampen the sentiments in the real estate segment. The economic climate, not monsoon, is what determines the fortunes of the players in the real estate sector. For instance, in 2009-10, the most recent low rainfall year, Mahindra Lifespace Developers saw its revenue nearly double and profit jump over 70 % year-over-year. This shows that there is a very little co-relation between monsoons and demand in the realty sector.
Likewise Prestige Estate Projects’ profits increased 86 % in that period. However in the non-drought year of 2008-09, the revenues and profits dropped substantially for the real estate companies due to the global economic crisis. This is sharply in contrast to the myth that good monsoon affects the realty sales positively.
In fact, lack of rains can be beneficial for the sector. For one, lack of agricultural work may increase labour availability. This along with construction continuing during the season improves revenue recognition and cash collection from the customers, as these are based on percentage of completion.
Also another interesting trend is observed that the apartment booking by buyers, especially in Mumbai, slows down when there are heavy rains and delays in onset of rain can enhance buyer interest. The realty sector had a difficult year in 2013-14 due to weak demand caused by a sluggish economy and high interest rates. The government needs to give leeway to the banks so that they can bring down the home loan borrowing rates. That will help in improving the demand in this sector.
Source- The Hindu Business Line
Mahindra Lifespace Developers, Mahindra Lifespace Developers Ltd (MLDL), Mumbai real estate sector, Prestige Estate Projects Ltd, Real Estate Sector
