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forced out of the market.
“Already there are cases where some smaller developers are facing the finance crunch and while they have a parcel of a land with them they don’t have the financial strength to to go ahead with their projects. In many cases they are approaching bigger developers to develop the project,” said a leading real estate expert.
A drop in demand and sale in a weakening economic environment may push many developers into financial constraint and thereby also put pressure on the banks who have lent money to them. “Debt cost for developers is high and private equity money has dried in the current market with the sharp depreciation in the rupee,” said Anshuman Magazine of CBRE.
So what does the RBI measure do? It cuts off the spigot of easy money for the developers to finance their project, in which case falling sales could prove to be just too much for them to handle. Because of the sliding rupee non-resident Indians had taken off their money from the table.
The 80:20 scheme had created a light froth of demand from another category?the relatively poorer domestic buyers since they were required to pay only the upfront 20-25 per cent with the rest after possession. While it benefited consumers, it was also benefiting the developers as they were getting funds at home loan rate. This money is now set to rise by 300-350 basis points pushing up construction costs.
Market experts like Gulam Zia, national director, research and advisory services, Knight Frank feel this will have a significant impact on sentiments in the market. “While the Residex data was already having an impact on the sentiments, this will have a multiplier effect”. Mistry of HDFC is sure the holding capacity of middle class India is strong enough to keep the market for first homes going if prices are right.
For Rajan the choice was difficult. Bearing down on some of that demand cuts out another source of growth in the economy. Construction as a percentage of GDP has dropped from 7 per cent to 2.8 per cent. But the governor was one