Real estate prices unlikely to reduce
New Delhi- Real estate in India, in the present year 2013, seems to have a good start with many new launches, interest rate cuts, and quicker project approvals in progress.
Finance minister P Chidambaram identified that many incomplete stalled projects could be resumed construction if supported by financial institutions. Reserve Bank of India (RBI) is planning to direct banks to continue lending to such projects. However this move is not of much benefit to buyers and lenders. While the minister’s directive will only increase lenders’ exposure to risky projects, buyers are unlikely to get help since prices will not come down.
In 2012, a report by real estate consultancy firm Knight Frank had stated that banks have cut down on their lending to the real estate sector. It said that the growth rate has decreased from 23.2 percent in June 2011 to 4 per cent in June 2012.
At the time, outstanding bank credit to the real estate sector stood at Rs 53, 1300 crore, of which 78 percent was given towards the housing loan segment and the remaining 22 percent to real estate developers.
Knight Frank reported that decreasing property sales coupled with stretched balance sheet will remain a concern in the short term, and this would lead to moderation in property prices in some markets.
It is observed that at a time when liquidity was tight and interest rates were high, builders were being forced to sell properties to even end-users during the pre-launch stage at discounts to lure buyers and increase sales volumes. Several big developers like Lodha, Unitech, DLF, Godrej Properties, L&T Realty and Indiabulls are seen pursuing this model.
While legal funding through the ECB route and banking funding for affordable housing started, a minimum of 70 percent of this money is used in acquiring land for luxury projects.
This shows that any further lending by financial institutions will only rise the stress on the economy and provide the builders an opportunity to continue holding prices at high levels.
Some of the market analysts observe that according infrastructure status to affordable housing is worth but infra status to housing as a whole will only burn the real estate sector further. Since the infra projects become non-performing assets only if they are delayed above 2 years, while a delay of six months will cause them to be NPAs if they are not an infrastructure project. By giving infra status to the housing sector as a whole, the RBI will only increase the exposure of banks to an unregulated sector.
The demand for housing seems to have started reviving and this revival is unlikely to bring down the prices. Rather costs are increasing on account of higher input costs, charges for additional FSI, increased ready reckoner rates, and other factors.
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Affordable Housing, demand for housing, Infrastructure status, Knight Frank report, New Delhi, Property sales, Real estate in India, Real Estate Sector, Reserve Bank of India, sell properties, stalled real estate projects
[...] Real estate prices unlikely to reduce [...]
[...] Real estate prices unlikely to reduce [...]