DEMAND PULL

There is cautious optimism among the buyers after a drop in prices. After a significant drop in interest rates, a further 10-15% drop (depending on location) in prices is believed to be luring buyers. With the average home loan size hovering at Rs 15 lakh, according to the largest home financing company HDFC and the ticket size for a 2BHK ranging from Rs 45-80 lakh, there is a big disconnect. The developers have finally realized that neglect of the strong middle class was a big blunder. And their focus has now shifted towards the affordable housing sector. This could bring buyer confidence back into the market.

STOCK MUSINGS

It might be good time for the
home buyers, but the situation is not the same for investors of real estate companies. The stock market has taken a beating and the real estate stocks have been hammered beyond recognition. There are no visible signs of recovery, at last in the next 12 months. This has left the investors in a lurch. However, tough times like these call for tough decisions.

As we all know, the demand has dried up, be it in the residential segment, retail or commercial. Many companies have committed huge funds towards ambitious projects. The completion of those projects, however, appears to be a bleak possibility. This would affect the companies’ cash flows and have a bearing on revenues as well. In fact, some developers are diverting the limited funds to complete the low-margin affordable residential projects. Realising the potential demand in this category, some developers have even launched new projects. Despite the huge demand, this is a volume game with lowmargins. The business model of companies is therefore shifting from high-margin luxury apartments or villas to thin-margin mid market housing, thereby reducing the overall profit margins of the group company.

It is advisable for real estate sector has become organized recently, there needs to be clarity on the area (carpet or built-up) at which prices should be quoted. The stamp duty and registration charges have to be rationalized inline with the drop in prices. Multiple state laws, single window clearances and title clearances are other reforms that must be introduced to boost the country’s second-largest employment generating sector.

Courtesy:- Et dtd:- 16-03-09