Analysts, however, expect an improvement in terms of completion of existing projects as developers are likely to focus on execution and timely delivery during the new year- 2012.
The past year witnessed high unsold inventories and delays in project execution due to continuous interest rate hikes by the RBI (Reserve Bank of India), forcing buyers to delay purchases, leading to a liquidity crunch for the developers, who also saw construction costs go up on account of increased raw material costs.
The Indian realty industry is sitting on a debt pile of about Rs. 45,000 crore as on today. Significantly, most of the amount is held by unlisted players and the loans are from NBFCs (Non-Banking Financial Companies).
Bank lending to the Indian real estate sector grew by 11.6% between October, 2010 and October, 2011, compared with 15.7% during the year-ago period. Similarly, FDI (Foreign Direct Investment) flows into the realty sector witnessed a 26% decline on an annual basis.
In addition, regulatory bottlenecks like delays in project approvals and land acquisition problems, especially in the major metros, resulted in unease among developers, forcing them to go slow on new launches.
Mr. Samir Jasuja, Chief Executive, PropEquity said, ''The near term outlook for residential real estate market is likely to remain cautious in 2012, given the likelihood of low market sentiment. Key market indicators, including absorption and new launches, are likely to remain low, given execution concerns"
Mr. Samir Jasuja also said,'' Developers may focus on execution and timely delivery in 2012 and not get into new launches to avoid an inventory overhang."
Experts say there are expectations of the RBI cutting interest rates in the near future.
Mr. David Walker, Executive Director, Sare Homes said, “The expectations of lowering of interest rates, coupled with softening of construction costs, is expected to boost the end-user demand for housing in 2012”
In 2011, residential prices continued to move upward in major residential markets across the country such as Chennai, Delhi - NCR, Mumbai, Bangalore, Pune and Kolkata resulting in higher unsold inventories.
The Delhi - NCR region reported the maximum unsold inventory level in residential real estate at 1,02,758 flats, followed by the Mumbai Metropolitan Region (Mumbai, Navi Mumbai & Thane) with 90,512 unsold flats. The number stood at 46,596 flats in Bangalore and 40,734 in Pune.
The liquidity crunch will continue to be a major cause of concern for developers in 2012 as well, given the fact that banks are very cautious on lending to realty projects.
Mr. Paras Gundecha, President, Maharashtra Chamber of Commerce and Industry said, “Since the banks had lowered their lending for RE projects, developers had to depend on private equity and FDI for raising funds to complete their projects, who charge nearly 18-30% interest rates on their lendings”
Src: PTI
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