Developers respond to demand signals, focus now on housing
The Financial Express, March 30, 2009, Page 4
Kakoly Chatterjee, New Delhi
Flow of investment in the real estate sector for commercial space has dried up. A CMIE study—the think tank that tracks key economy indicators—says in the period during January-February this year 47 projects were launched for housing while only 4 came up in other sectors.
It seems real estate companies are now investing only in the housing segment.
This makes sense in a scenario where demand for office and shopping space has touched rock bottom. At the same time, excess supply is still sloshing around. So developers are not finding it profitable anymore to invest in commercial and retail segments. Realtors are also faced with a major problem of cash flow and consequently a crunch of their working capital cycle.
But there is something more here. Companies are now responding to demand signals rather than going by their estimate of profitability.
“This is the only survival strategy available for real estate companies. Till now they were not so much concerned about demand and built only what was more profitable for them. But now their construction activities are very much demand driven,” said a Bombay based analyst.
As a result the balance is tipped heavily towards residential projects. To make the residential projects attractive, realtors are also slashing the price of existing projects. The biggest realty player, DLF has already cut down prices of its Chennai, Bangalore and Hyderabad projects in the range of 20% to 30%. This will benefit both new and existing customers. This is expected to cascade onto others too.
In the January-February period, Omaxe has announced Gujarat Residential Township Project which is worth Rs 10,000 crore.
Akruti City has announced Just Perfect Homes’ Phase I Housing Project which will cost Rs 1,500 crore. Hindustan Construction Company has launched Sanand Township Project which is estimated to cost Rs 40,000 crore.
Ansal Properties & Infrastructure Ltd has launched Multi Location Low Cost Housing Project which will cost Rs 500 crore.
The learning process has taken time. After the slowdown started and it touched the Indian shores early last year real estate was hit very badly as sales dropped sharply. Price cuts followed after the RBI slashed interest cuts to save the situation.
But the stock of projects with the realtors were basically high margin ones. The premium housing segment generated profit margins when the going was good. But it is now that the companies are shifting their attention in terms of new projects to the demand driven low and medium cost housing.
Of the 121 projects captured in CMIE CapEx data base more than 100 projects are housing and most of them in the non-premium segment.
The Financial Express, March 30, 2009, Page 4
Kakoly Chatterjee, New Delhi
Flow of investment in the real estate sector for commercial space has dried up. A CMIE study—the think tank that tracks key economy indicators—says in the period during January-February this year 47 projects were launched for housing while only 4 came up in other sectors.
It seems real estate companies are now investing only in the housing segment.
This makes sense in a scenario where demand for office and shopping space has touched rock bottom. At the same time, excess supply is still sloshing around. So developers are not finding it profitable anymore to invest in commercial and retail segments. Realtors are also faced with a major problem of cash flow and consequently a crunch of their working capital cycle.
But there is something more here. Companies are now responding to demand signals rather than going by their estimate of profitability.
“This is the only survival strategy available for real estate companies. Till now they were not so much concerned about demand and built only what was more profitable for them. But now their construction activities are very much demand driven,” said a Bombay based analyst.
As a result the balance is tipped heavily towards residential projects. To make the residential projects attractive, realtors are also slashing the price of existing projects. The biggest realty player, DLF has already cut down prices of its Chennai, Bangalore and Hyderabad projects in the range of 20% to 30%. This will benefit both new and existing customers. This is expected to cascade onto others too.
In the January-February period, Omaxe has announced Gujarat Residential Township Project which is worth Rs 10,000 crore.
Akruti City has announced Just Perfect Homes’ Phase I Housing Project which will cost Rs 1,500 crore. Hindustan Construction Company has launched Sanand Township Project which is estimated to cost Rs 40,000 crore.
Ansal Properties & Infrastructure Ltd has launched Multi Location Low Cost Housing Project which will cost Rs 500 crore.
The learning process has taken time. After the slowdown started and it touched the Indian shores early last year real estate was hit very badly as sales dropped sharply. Price cuts followed after the RBI slashed interest cuts to save the situation.
But the stock of projects with the realtors were basically high margin ones. The premium housing segment generated profit margins when the going was good. But it is now that the companies are shifting their attention in terms of new projects to the demand driven low and medium cost housing.
Of the 121 projects captured in CMIE CapEx data base more than 100 projects are housing and most of them in the non-premium segment.
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