Realty Bubble Set to Burst

Published on June 04, 2013, 04:00 AM IST
bangalore real estate
The reality of the economic slowdown has struck home. Realty experts, somewhat in the garb of doomsayers, have predicted that the days of impressive returns are over. Home buyers are staring at poor returns on their investments, while developers are finding it hard to sell their units. A report by global realty consultancy firm Cushman and Wakefield (C&W) has said that investments in the residential real estate market in India will bring in about 10 to 20 per cent in 2013-14 down from 30-40 per cent in 2012-13. Additionally, the piling up of unsold inventories of projects, it said, will put downward pressure on returns.

Sanjay Dutt, executive managing director (South Asia), C&W, said the economic slow-down had impacted the realty sector, and NCR areas and Mumbai would be the worst hit. "It would be wrong if people are expect-ing returns of 30-40 per cent that they used to get earlier by investing in this sector. We believe that the returns will be even less than half of what they got earlier," he said.

About the high-end realty markets in Gurgaon, the C&W report said: "With quite a few projects in final stages of construction and new project launches at higher prices, Gurgaon is likely to witness increase in capital values." C&W says the NCR has witnessed a decline of 38 per cent in the number of units launched as compared to the previous quarter. In the Noida region, the figure went down by 69 per cent.

Mudassir Zaidi, regional director (north) at property consultancy Knight Frank, expressed similar views on the realty market sentiment. "There will be moderate returns in the range of 10 to 15 per cent in the prop-erty sector this year. Developers have started feeling the pressure of the economic slow-down. The number of actual buyers has gone down, and we will not see much price appre-ciation," he said.

Zaidi said NCR areas usually witness the sale of about 80,000 units in one year . "But, this time, I don't see it reaching that mark. It will remain in the range of 50,000-52,000 units. We can say that a slowdown in the realty sec-tor has begun."

Developers feel that people's interest in realty investment has come down. Parsvnath Developers chairman Pradeep Jain said, "Today, people are cautious about investing in assets like a house that require big invest-ment. That is one of the reasons why the off take of homes across the industry is not at the desired level. People are waiting for senti-ments to improve in the economy and I am sure once that happens, sales will pick up."

Generally, people are not coming forward to buy inventories. The sector is fac-ing the fear of slowdown. Piling up of unsold inventories has put pressure on returns, and this will continue throughout this financial year. "We expect some correction in the realty sector which could be up to 20 per cent in some projects in NCR areas," Dutt added.

It is not unnatural that those keen to invest in the sector have adopted a 'wait and watch' approach; many of them even choosing to stay away for the moment. Developers, on the other hand, are coming up with lucrative offers to woo buyers. There is a view that reduced corporate profits and loss of job confidence were the main reasons for the phenomenon. The ongoing liq-uidity crisis coupled with political instability will keep the property market in NCR subdued this year, say market experts. Iftikhar Ahmed, director, Nirala India, said, "Prices of property can't go up as in the past. We can't see much appreciation in realty markets in the Noida Extension area in the near future."

C&W's Dutt believes one way to meet the crisis would be 'fire sell' units. "Realtors will have to come up with enticing offers as a big amount of money is involved. People will not buy units if they don't come up with freebies," he said.

Courtesy: MailToday