Off late, the real
estate sector of India has been much in limelight due to the floating negative
sentiments caused by delay in possession of projects, coupled with sky
rocketing prices especially in Tier 1 regions of the country. These reasons
have dented the housing demand and is causing drastic fall in the interest of
potential customers along with heavy inventory pile up for the developers.
Being a case of land, big depreciation is pretty much off the cards and hence,
can prices come down becomes the question. But in order to keep the market and
sentiments stable, developers need to provide some extra cushion. In a recent
speech delivered by Raghuram Rajan, the Governor of RBI; he insisted upon
developers to take the onus and bring down the prices to help revive the sector
and provide much needed transparency. “I am hopeful that as interest rates come
down, there will be more credit and buying. And I am also hopeful that prices
adjust in a way that encourage people to buy”, Rajan said.
Standing in sync with
the words of the Governor, Avneesh Sood, Director of Eros Group also believes
that price flexibility has become the need of the hour, as he explains “It is
crucial to understand that real estate sector is an end user to almost 35 other
industries and sectors, and if this sector is drowning, then it is not fruitful
for the economy in general. RBI has played its part seemingly well over the
last one year by bringing down the repo rate to 6.5 percent. Almost half of the
rate cut benefit has been passed on by the banks. It is time now that
developers also chip in to help this market get back on track.”
Rajan further said, “My
sense is that there is a little bit of everything that needs to happen” for the
revival in the real estate sector. “There is an issue of certainly how they see
the housing market and how they see prices. There has to be an adjustment so
that more people want to go and buy”, he added. Highlighting on the escalating
pricing effect that has resulted towards lowering demand and high inventory
levels, Ankit Aggarwal, CMD, Devika Group avers “Real estate is an asset which
is somewhere bound to appreciate with time. But the kind of appreciation that
most Tier 1 regions across the country has witnessed, it has taken the buyers
away from the market, especially investors, who were a prominent sight when the
property prices were low. Housing demand is driven most by end users who again
are looking at property prices. Thus, after RBI’s rate cut push and banks
following the trend, if still the revival does not happen, then developers have
to work towards decreasing the prices and increasing the transparency.”
High sale price is a
result of high cost price that begins with the cost of land and the rates at
which developers borrow funds. At present, developers across the country borrow
at rates as high as 22-24 percent and with land being limited and
infrastructural upgradation happening at a rapid pace, fresh land parcels have
become much expensive, thus adding to the cost. Here comes the importance of
being an industry. “Granting of industry status to the realty sector will
directly help in the reduction of prices. The moment a developer is able to
borrow at lower rates, something that industry status will allow, it will
directly contribute towards lowered prices. But at the same time, it is crucial
for the borrower to maintain transparency and have a sound history. Industry
status to the realty sector is on the wishlist for long now and we expect a new
face of this sector when it is attained”, elucidates Deepak Kapoor, President
CREDAI-Western U.P. & Director, Gulshan Homz. Rajan also emphasised on the
fact that when it comes to financing to the developers, he pitched for more
transparency on the borrower’s side. He said “We need action on the real side
(as) also on transparency on land acquisition, on transparency on construction
and on sales.” He further added that more transparency in such matters would
enable financiers to better track flow of funds, which project was being funded
by who and who all were the other financiers.
“RBI has lowered the
repo rate by 150 basis points since last year January and now stands at
6.5 percent, which is the lowest in the last five years. Banks have also
provided the benefit of this rate cut to a large extent to the customers. But
still, the market is not picking up pace on the grounds of high prices and lack
of transparency. It is high time that the developers take the market sentiments
into consideration and allow flexible pricing for the customers along with increased
transparency, so that this sector gains back the lost momentum”, states Kushagr
Ansal, Director, Ansal Housing.
Projecting India’s
growth few years down the line and acknowledging real estate sector’s future
contribution towards economic development, Rajan commented that “Construction
of every kind, including houses and roads, is a big source of growth especially
for a developing economy like ours.” It is true that India is on a development
spree on various construction fronts. Construction sector’s housing aspect
cannot be left as it is and rather, needs to be taken up seriously in order to
keep this sector contributing towards Indian GDP. “Construction sector is one
of the largest contributors towards the Indian GDP with almost 6 percent
contribution each year. This momentum has to be maintained. The demand is
taking a toil due to the absence of proper transparency and high prices. Real
estate bill is moments away from becoming an act which will promote fair play
and transparency, but what about the pricing factor? State governments need to
provide fresh land banks at reduced prices and the centre must grant industry
status. The sector will then gradually see momentum shifting towards better
demand and growth”, concludes Ashok Gupta, CMD, Ajnara India Ltd.
