Of late, the Indian real estate industry is reeling under pressure and the slowdown in the sector is likely to continue in 2012, deepening the depression of developers and allied industries.
A combination of factors such as high interest rates, increase in unsold inventory and rising debt burden has put the industry under stress in 2011. To top it all, controversies over land acquisition and various reform proposals took the property sector for a bumpy ride last year. This year is expected to be no different for the realty industry.
At present, the real estate industry is sitting on a debt pile of close to Rs 45,000 crore, despite the attempts by the Reserve Bank of India (RBI) to prevent a bubble in the industry. Gross bank lending to the realty industry slowed to 11.6% in 2011 from 15.7% in 2010. Moreover, foreign direct investment (FDI) in the sector have witnessed 26% decline annually.
In light of the low market sentiment, the near-term outlook for residential real estate market is likely to remain cautious in 2012, said Samir Jasuja, founder and managing director of PropEquity Research, a realty data and analytics firm in New Delhi, in a statement to the media. In addition, absorption and new launches are likely to remain low given the execution concerns, he added.
Ashutosh Limaye, head (Research and Real Estate Intelligence Service) at Jones Lang LaSalle (JLL) India, an international property consulting firm, said, “Flow of funds has become a concern for developers in recent times. The rising debt burden and declining FDI inflow are taking a toll on the industry.” Mr Limaye also indicated that regulatory bottlenecks such as delay in statutory approvals and high cost of finance have compelled developers to go slow on new launches, thereby heavily impacting project construction timelines.
In a recent report, JLL further suggests that the domestic realty space could experience outflow worth more than US$2 billion in 2012, which in turn would definitely increase the pressure on the beleaguered sector. Providing some relief to developers, JLL (India) chairman and country head Anuj Puri said that the pressure is going to be on the private equity (PE) players and not on real estate companies.
Despite high supply, property demand has remained low in some cities, as investors and end-users have been showing signs of weariness owing to repeated increase in interest rates by RBI since March 2010. This is likely to have an impact on residential sales in 2012 as well, opines Anshuman Magazine, CMD (South Asia) at CBRE, a reputed real estate brokerage firm.
According to property consulting firm DTZ India, macroeconomic indicators are not healthy — while the rupee is depreciating, fiscal deficit and interest rates are high. This does not augur well for any industry and real estate is no exception.
However, in the new year industry analysts expect an improvement in completion of current projects, with developers laying a focussed approach on project execution and timely delivery. There is a hope that things may look up for the realty industry, when RBI starts softening interest rates in 2012.