The Indian real estate sector, which has been facing difficulties for the past six months, is expected to see a turnaround thanks to the recently announced stimulus package by the Union government and the Reserve Bank of India's (RBI) decision to permit banks to offer specialized treatment to the real estate industry. Industry experts believe that Monday's interest rate reduction on home loans up to Rs 20 lakh could further enhance market sentiment.
Positive Response from Industry Leaders
"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," stated Niranjan Hiranandani, chairman of Hiranandani Developers.
Expected Impact of Government Measures
Granting priority sector status to low-value loans, restructuring commercial property loans, and reducing the excise duty on essential building materials like steel and cement are anticipated to considerably lower the cost burden on developers. Many developers have already observed positive changes, with increased inquiries and robust sales registered in some newly launched projects, as noted by Sandeep Runwal, director of the Runwal group.
Shifting Market Dynamics
Until recently, real estate companies focused on accumulating vast land banks, often through competitive bidding for expensive land parcels. Financing was primarily through internal accruals and substantial bank loans, leading to inflated property prices. The narrative changed after the stock market crash, resulting in decreased investor cash flow for property investments and a subsequent decline in demand. This decline had an equivalent impact on property prices, which also began to fall.
Addressing the Liquidity Crunch
"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," explained Ram Yadav, director of finance at Orbit Corporation. The credit crunch has posed significant challenges for developers, resulting in reduced new launches and difficulties completing projects under construction.
Impact on Developers
While acknowledging the widespread slowdown impact, Hari Prakash Pandey, deputy general manager of finance at HDIL, stated, "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." Many companies have, however, resorted to staff reductions due to project launch delays, with reports suggesting that some North India-based developers like Omaxe, Parsvnath, and DLF have reduced their workforce.