While 62% of real estate developers and financiers remain bullish on the long-term growth of the Indian real estate industry according to the findings of the latest Ficci and Ernst and Young report, they agree that the going is tough at the moment. Land valuations have come off their highs while banks have become more cautious in financing projects. Buyers too are shying away by high rates of interest.
Sushil Ansal, chairman of Ansal API says that the markets has come down by 10-15%. Ganesh Raj, partner and head real estate, infrastructure and government of E & Y says that land valuations have come down by 10-20%. Raj points out the big players and financiers are most likely to be the ones who will manage long enough for the industry fundamentals to turn positive. However, the small players may suffer. "The question is how long will the downturn last? Those who can hold on will be able to weather it and others will be forced to sell," he says.
Experts point out that demand from retail for malls has slowed down the most while demand from IT has dipped the most for commercial real estate. For instance, there is an oversupply of real estate meant for IT industry in Gurgaon. Thats because experts feel rent for rest of the commercial real estate is 30-40% higher even now. "Demand from the residential sector has been hit the least," says Ansal.
Meanwhile, developers still have to pay interests and deliver projects. What are there options then? E&Y's Raj says that developers who were expecting 20-30% margin will sell at single digit margins. "We have not seen anyone in the survey saying that they are holding on to inventories and are not selling at lower rates," he says.
It seems that the pain for the real estate industry is not going to go away any time soon.
Source: Taneesha Kulshrestha From Live Mint, September-04-2008
