US financial crisis set to impact India's real estate sector:
August 9, 2007 is the official date when the crisis is said to have hit global finances. But the rot had started much earlier.
In 2006, the US housing market started to feel the pain of high interest rates -- which, between 2004 and 2006, had risen from one per cent to 5.35 per cent -- resulting in default rates on *sub-prime loans rising to record level.
In 2006, the US housing market started to feel the pain of high interest rates -- which, between 2004 and 2006, had risen from one per cent to 5.35 per cent -- resulting in default rates on *sub-prime loans rising to record level.
The crisis in the US financial market will hit the Indian real estate sector hard. The sector was already reeling under tremendous pressure as RBI increased the interest rates to contain inflation, besides restricting the fund flow in it. Consultants said that in the present circumstances the real estate prices will go for a sharp correction in the short to medium term.
Over-supply plagues residential market:
For those who thought the worst was over, there’s more bad news. The slowdown in the real estate sector is far from over. Rather, the worst seems to be knocking on the door, with retail and office rental prices across the country witnessing a sharp drop. In fact, current market stats reveal that there has been a drop in both retail and office rental values in the last two months which varies from 25% to 50% in some micro markets such as Gurgaon and Greater Noida, where malls and office space have seen a dip of 25-50 %, and Saket (south Delhi), where the rates have dropped by 30-35 %. Overall, the rental rates in cities such as Kolkata, Chennai, Mumbai, Pune and Bangalore have also dropped by 25-30 %.
Rising land prices hit property developers:
The property market is desperately seeking a silver lining — but that seems to be evasive. In fact, real estate developers are facing a double whammy of a dip in prices of residences across the country by around 15-20% in the last few months, even as land prices are going up. While home buyers have reason to be happy over falling prices, an increase of 15-30% in land prices over the last eight months is causing sleepless nights for developers. Besides cash crunch, what’s worrying real estate players is that with land prices going up, they are not being able to add to their land bank.
In the last couple of years, land prices have escalated by 50% to 100%, depending on the location. In some places, prices have risen by as much as 200%. For developers, land is the main raw material and typically, they have made their money buying land cheap and building and selling homes on it after prices have tripled or quadrupled.
