have not been able to exit their legacy investments profitably, and schemes such as 80:20 that allowed developers to borrow using customer’s credit has also been effectively banned by the RBI.
The second factor is over-leveraging. “Many developers had borrowed a lot in the past to buy land banks. Now that demand has slowed down and interest rates have gone up, they are stuck servicing large amounts of debt which sucks out most of their cash flow. They don’t have too much money left for development,” says Panchapagesan.
Third, the shortage of land, and announcement of projects where land had either not been acquired or some land title issues had not been resolved, and fourth, incomplete approvals and the over ambitious announcement of projects especially when all required approvals have not been obtained.
All this leads throws the buyer’s plans off track. When the house isn’t delivered by the promised date, there are additional costs, both upfront and hidden that the buyer has to foot. There is the EMI payment that goes on regardless of the extension of the delivery timeline, and the additional rental expense until the house is delivered.
There are then the factors that are outside developers’ control. First, slackness in customer demand. “Many developers had gotten used to financing construction with deposits made by early customers. Slowness in booking has reduced this liquidity. Many developers did not plan for this to happen. Also finished houses inventory has gone up considerably costing developers quite a bit,” says Panchapagesan.
Kumar says that pan-India inventory is now well above the comfort level of 14-15 months. Mumbai has an inventory of close to 48 months, Delhi of 23 months and Bangalore of 25 months. “These are close to the levels of 2007, when the residential real estate market’s inventories were at an all-time high,” says Kumar.
The second factor is increase in land prices. “Those who have to depend on buying land for development are the ones that have gotten mostly hit in this rapid land price increase. Those who do joint development with land owners are better able to weather it,”