The Union government’s recently announced stimulus package, coupled with the Reserve Bank of India’s (RBI) move allowing banks to provide special treatment to the real estate sector are likely to change the fortunes of Indian real estate sector, which has been struggling to survive for the past six months. Monday’s interest rate cut on housing loans up to Rs 20 lakh could further improve the sentiment, industry officials said.
“It’s a good beginning. At last, government has recognized housing as a priority sector. They have also realized that the construction and housing sectors are the largest employment generators in the country. But, whatever measures have been announced now, is a great relief to the industry,” Niranjan Hiranandani, chairman, Hiranandani Developers said.
Priority sector status to low-value loans, restructuring of loans taken for commercial property and a reduction in the excise duty on inputs like steel and cement are expected to reduce the cost burden on developers significantly.
Many developers said that changes are very visible now. “Number of enquires are increasing. Strong sales are being registered in some of our new project launched last month,” Sandeep Runwal, director, Runwal group, said.
Till some time ago, companies were in the race to amass huge land banks. They were intent on outdoing each other by bidding for costly land parcels. The financing was done through internal accruals and large-scale bank borrowings. This had sent property prices to new highs.
Things started to change when the stock market crashed and investors were deprived of their surplus cash, which could have been used to buy property. It also caused a decline in demand so such an extent that developers were not registering any bookings. Faced with the same fate, property prices also started falling.
“The government’s policy initiatives come at a time when the industry was reeling under a major liquidity crunch. This would certainly prove to be beneficial for companies that are facing working capital shortage.” Ram Yadav, director finance, Orbit Corporation, said. The credit crunch has put the developers in a fix. New launches were coming down drastically. Completion of projects under construction became difficult.
“There have been no new launches in the recent times but the ongoing projects are running on schedule. Being the largest player in Mumbai, HDIL cannot be insulated from the impact of the slowdown. Since our business model does not require us to amass a huge land bank, we have been able to continue,” said Hari Prakash Pandey, deputy general manager, finance, HDIL. Many companies have retrenched staff from projects due to a delay in launch. Reports hint that some of the north India-based developers like Omaxe, Parsvnath and DLF have cut their workforce.
