Realty to take a hit, players pin hope on festive season

Written by fe Bureau | Mumbai | Updated: Jul 27 2011, 07:00am hrs
The latest 50 bps hike announced by the Reserve Bank of India on Tuesday is expected to further dampen sales in the real estate sector. Developers say the hike will impact sentiment in the short term, and are now pegging their hopes on the festive season starting October for a demand uptick.

According to Niranjan Hiranandani, co-founder and managing director, Hiranandani Group, the hike is counter productive, since interest rates will now begin to hurt, impacting living standards. "People have deferred their purchase decisions, so it is the pent up demand that has been created in the system. This hike will not curtail inflation, instead it will throw marginal buyers out of the market," he cautioned.

"The hike will definitely dampen consumer sentiment. However, we are confident that given the steady monsoon, this would be the last hike before the interest rates start cooling off. We hope that as the festive season starts, the interest rate scenario will be more favourable," said Pujit Aggarwal, managing director & CEO, Orbit Corporation.

Pirojsha Godrej, executive director, Godrej Properties was more optimistic. "While increased rates are clearly a dampener for the real estate sector, we are hopeful that the interest rate cycle is at or near the peak and we remain confident about the strong prospects of the sector in the year ahead."

Some developers were very categorical that this fresh increase will lead to a further hike in property prices. As a real estate developer, we are not left with any choice but to pass on the same to our buyers, resulting in an increase in property prices. Also this (rate hike) will make the cost of funds expensive for both developers and buyers coupled with constant increases in the input costs, making the business environment very complex across industries," said Pradeep Jain, chairman, Parsvnath Developers Limited.

In what would explain the dire straits that the sector is in, the Maharashtra Chamber of Housing Industry (MCHI) has appealed to the various home loan institutions and banks to absorb the impact and not to pass it on to the end customers.

Bankers have systematically raised home loan interest rates as and when RBI hiked the repo rate, and we strongly feel that they should consider the home buyers interest, said Paras Gundecha, president,, MCHI.

Sales of new residences across India fell 10% sequentially in the quarter ending June for the calender year 2011, as per international property consultants Jones Lang LaSalle (JLL), quoted in a Morgan Stanley report.

The number of new units sold in the quarter across India (excluding Noida in NCR) were 27,000 down 10% from 30,000 units sold in the quarter ended March 2011, which was up 5.6% compared to 28,400 units sold in quarter ended December 2010. December quarter sales were flat compared to quarter ended September 2010 where 28,500 units were sold.

In Mumbai too, one of the largest real estate markets in the country, the first quarter of financial year 2011 has remained sluggish in property sales, according to the property registration data with Director General of Registrations. The sales number tumbled 23-24% to 14,531 in quarter ending June 30, against 18,900-19,200 registrations made in the year-ago period.