Real Estate in dire strait

Published: February 2, 2009 - 17:27 Updated: February 2, 2009 - 17:34

Hardnews Bureau, New  Delhi

Intro: Numerous issues confront the real estate and as the story unfolds with each passing day of recession, what the future holds for the real restate remains a mystery

The real estate sector in the country is in dire straits with dwindling sales and profit margins following the onset of global economic meltdown. Big real estate players like DLF, Unitech, Parsavnath among various others have announced massive losses in their third quarters. DLF's net profit was down by 68.72 per cent from Rs 2144.98 crore to Rs 670.79 crore while Unitech third-quarter profits were down by 74 per cent as their sales halved and operating costs shot up. Both Unitech and DLF have decided to sell their assets to battle the economic slump. This gloom in the real estate sector has created panic amongst the real estate players and this could eventually lead to a price correction which should eventually benefit the consumers. DLF's vice president told Bloomberg that the real estate prices could come down to 1998 prices.

In a move to boost the real estate sector, State Bank of India on all new loans has cut its floating loan rate to 8 per cent, irrespective of the loan amount and in all possibilities other banks will follow the suit soon. As a result of this the EMIs on home loans will fall drastically. A Rs 30-lakh loan for 20 years will fall by 15 per cent and that on a Rs 50-lakh loan by 18 per cent. A loan above Rs 75 lakh will result in maximum benefit with the fall of interest rate by 3 per cent. But with the onset of recession this move would hardly be of any use as incomes are dwindling and there is no job security. Hence buyers would hardly be interested in investing in these difficult times.

The residential real estate prices crashed somewhere in mid 1990's and surged again in 2002-03 and since then the progress has just shot up and in this short sapn the residential property prices shot up so much that the middle-class buyer could no longer afford match these soaring prices. Hardnews had earlier reported (see: ) how ordinary folk can only look at enticing billboards and luxurious ads and wonder if their dream of owning a modest house will ever come true. Surely, this is one possibility that can never happen, but with the onset of recession large numbers of high end projects have been abandoned. On the flip side, now big players have no option but to start looking at the middle class that forms the majority of buyers and who had been ignored all this while.

The primary reasons for the country's housing boom were: rising incomes, job security, low property prices and interest rates, and tax benefits. However, with the onset of global economic meltdown these factors have taken a hit. Rising incomes are a thing of past, there is nothing called as job security and property prices are touching the sky. While tax benefits still remain but they do not appeal the buyers to make such huge investments in these horrid times.

Additionally, the banks have become cautious and do not loan more than 50-60 per cent of the cost of the property and amongst this was the stock market that plummeted to post 1998 era. This lending by banks has also affected the developers who now find it extremely difficult to continue with their ongoing projects. Numerous such issues confront the real estate as the story unfolds with each passing day of recession, and what the future holds for the real restate remain a mystery.