Getting real about real estate

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‘Property rates to fall 25% in 12-15 months’SEZs get nod to prune area

: next two months in which this correction period is expected to take effect, will also be a prudent choice.

Real estate shares have had a major setback this year. The Realty Index has fallen 62% since January 1, against a 31% drop in the benchmark Sensex. A dozen of the 14 property index stocks, including DLF, Indiabulls Real Estate, and Unitech, have more than halved this year. A decline in demand has already prompted DLF and Unitech, the largest developers, to delay selling shares in investment trusts in Singapore.

“Property developers hit by falling sales and liquidity issues would need to reduce list prices to enhance demand, but many still seem to be holding on to the asking price.

This would delay the process of recovering demand and increase the risk of liquidity pressures. The sharp increase in construction costs, driven by increased steel and cement costs could also impact margins and, hence, liquidity.

The risk would be higher for real estate companies with a limited track record and limited cushion for debt financing. While banks have taken a restrained approach to funding real estate developers, we expect some of the more established developers to continue to enjoy access to the loan market. Only large players with an attractive portfolio of ongoing development and an established track record are in a position to attract capital through the private equity route,” says Valecha.

With many players expected to exit the markets in the coming time, which will appear on top is a question that still looms large. However, rather than punting now, awaiting for this mucky sector to clean its act up, and get things together before taking the plunge is for the best.

Transparency issues, land banks, speculations, high interest rates, stamp duties, low planning and infrastructure, overall bad governance and unscrupulous builders have left this industry with a lot to be desired.