The real estate market has almost lost the source of
liquidity as developers don't have money although just a few months back they
had several options for funding their projects. The scene has drastically
altered from developers being coaxed by many funds and investors to the
present situation in which they are now looking out for resources in desperation. As private equity players and other realty funds supported by
various investors are staying their investment decisions there has been
complete somnolence on the part of banks and other lending agencies. As all
indices have fallen it is unimaginable to even think of raising money from the
capital market. Realty stocks have taken the largest share of blows.
During the last ten years as real estate was coming up
as a new asset class with unparalleled returns everyone wanted a share of this
growth. More funds than projects were available just two years ago. From every
side money was flowing into real estate. As a result many projects were
launched in anticipation. There was a great deal of speculation.
Partial liberalization had opened some extra funding
choices for realtors. The last five years were rather meaningful for the market
as foreign and domestic funds competed for the booming real estate share in the country. The capital market also gave full support to realty stocks and the
majority of realty companies like DLF, Unitech and Omaxe, Parsvnath and Orbit
Corporation were listed at great premiums. During the recent months several
developers have opted for high cost funds at interest from 25 per cent to 35
per cent. The majority of these loans were raised from open markets to complete projects or sometimes to launch fresh projects. As these projects go forward
they will confront the worst problem as high input costs are involved, which
will not give builders much room to maneuver.
The player from Saffron Asset Advisor has put forth the
need to form a special contingency fund for the realty market to prevent any
grave casualty. Experts feel that this kind of step will restore the confidence of the market in a considerable measure. The market lacks trust more than
anything else. An overly careful approach has been adopted by the majority of
stakeholders which has jinxed the whole process. The government should playa
key role in easing the market and relaxing the ECBroute. Pune based Kumar
Builders have called for government intervention to lift the realty sector
out of the stormy waters. They feel it is time some liquidity was injected into
the market before the situation goes out of control. An intensive effort was
needed as real estate is an intrinsic part of the economy and a slowdown in it
would negatively impact the GDP growth that is already slowing down. The supply
pipelines of small cities such as Pune are more based on need unlike metros
such as Mumbai, Delhi and Bangalore.
Fears exist that if a timely measure is not taken soon
the market may go for major corrections in some parts that have excessive
supply which will cause a near crash. The upcoming real estate market will be
harmed by this and the likelihood of funds from overseas will dry up after two
years at the most. Sellers and buyers are not prepared for any serious
negotiation but they should come to the table while there is still time. Some
optimism too exists. Although speculators are avoiding the market, real buyers may emerge as prices become more realistic soon.
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