The party seems to be well and truly over for Real Estate. The ongoing global credit crunch has not spared India, which has caused a tightening of lending by banks. A bigger worry for the real estate sector is an absence of buyers due to a combination of high prices and the almost prohibitive cost of availing a home loan. The writing was on the wall (pun intended) , a fall in rentals in Bandra Kurla Complex in Mumbai now acknowledged as the benchmark for commercial property rates, suggested the wheels of the industry were losing traction.
It wasnt difficult to see this coming, as real estate companies have been reluctant to lower prices. The liquidity squeeze has led to companies disposing properties to raise cash, a notable example being Unitech. News reports have also suggested companies are offering discounts for bulk purchases, subject to the payment of a cash component upfront. Friends wouldnt believe when i had told them about six months or so the next market to witness a correction could be real estate. However, I have to admit i was wrong when i expected the big well established players to survive the oncoming consolidation. Even the well entrenched players like Unitech & Emaar are struggling, it seems the whole industry is struggling to come to terms with the slowdown in demand.
Does it mean housing becomes more affordable for the common man? Well for a start, the process has been initiated as developers have agreed to cut rates by 5-10%. But i would argue for a sustained revival in demand prices would have to be cut more aggressively, lower interest rates for home loans will also make things easier for investors looking to buy new homes. I sincerely do hope the froth in the real estate market is cleansed, an ominous example are the Investment banks an industry which has witnessed a shakeout akin to nothing ever seen before. I continue to wait and watch closely as i hope getting that dream house becomes a little easier.
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