Road to recovery

Road to recovery
ET Realty, June 19, 2009, Page 1

After a long lull, housing sector is back in business. Some real 'actions' are being witnessed in the realty market, including the high-profile launches of some major projects coupled with increased sales inquiries. ET Realty reports

Sanjeev Sinha

Spurred by price corrections, new launches, lowering of interest rates, increase in sales inquiries and, more importantly, the newfound mantra of 'affordable housing', the real estate industry has started showing signs of recovery. Industry body Assocham has gone to the extent of saying that the real estate recovery is possible in the coming three months. A recent Assocham Business Barometer (ABB) survey has found that anticipating strong policy measures for the real estate in the forthcoming Budget, embattled realty majors see positive signs of recovery taking place within the next three months as affordable housing projects rev up demand and improved cash flows address their liquidity concerns.

As per the survey, a whopping 92% of the respondent developers considered affordable housing as the most dominating segment to shore up the demand in real estate sector. And the policy actions supplementing the robust demand in the housing sector are likely to hold the key for a s p e e dy re c ov - e r y p h a s e in the s e c - tor.

Although the findings of this survey may seem to be too optimistic, particularly in view of the prolonged slowdown in the industry, but taking the current positive signs in the property market into account, both industry majors as well as ex perts feel the real estate recovery is not a distant dream. And they have ample reasons to believe this.

Firstly, after a gap of more than a year, some real 'actions' are being witnessed in the realty market, including the high-profile launches of some major projects coupled with increased sales inquiries. Along with that, some realty majors are also said to have recorded an overwhelming response for their upcoming projects. For instance, the Jaypee group claims to have booked all the 3300 apartments of Jaypee Greens Aman, its new residential project in Noida, within 24 hours of their launch, while Capital Greens, DLF's first residential project in Delhi, is claimed to have showed bookings of 1,400 flats on the first day itself. Such instances only prove that buyers and strategic investors are once again warming up to the sector, though in a restricted manner. Secondly, the Indian economy recorded a betterthan-expected growth rate of 6.7% in 2008-09. "The GDP growth rate, clocked in tumultuous times of global financial crisis, lends credibility to the presence of real domestic demand and consumption continuing to fuel the economy, though albeit at a reduced growth rate," says Neeraj Bansal, associate director - advisory services, KPMG.

Thirdly, sensing a nearterm economic recovery and, resultantly, expecting the realty sector to outperform other sectors in the months to come, fund managers are reposing their faith in real estate. This explains why in the month of April, mutual fund houses increased their exposure in the realty sector to Rs 308.16 crore as against Rs 98.76 crore in March, translating into a whopping 212.03% rise in the exposure.

Fourthly, there is a renewed faith of overseas investors also, stemming from the series of steps taken by developers to improve their financial position." Unitech has, for instance, cut debt by Rs 2,000 crore while DLF has repaid Rs 1,700 crore of loans in the past year. And similar is the case with lots of other large and mediumsized developers," says Bansal. Fifthly, home loan disbursements by the country's top lenders, which signal the actual demand for homes, is also improving. HDFC saw its fourth quarter disbursals going up by 17.5% at Rs 12,400 crore, while LIC Housing saw an increase of 42% and 22% in March and in Q4, respectively. Moreover, a general softening of interest rates has also helped developers cut their borrowing costs by as much as 300 basis points.

However, more than anything else, 'affordable housing' is believed to have currently taken the industry by storm. "Affordable housing will play a significant role in the real estate recovery over the next few months as developers are now connecting with 'real buyers' for the 'real prices' and are pricing projects more competitively," says Bansal.

Brotin Banerjee, MD & CEO, Tata Housing, agrees. "The demand for new homes has picked up in the second quarter of 2009 from the previous one. Increasing interest in affordable and lowcost housing is widely expected to help India's real estate market make a recovery in 2009 to 2010," he says.

Another important thing is that the government intends to focus on the construction of affordable housing for the poor and middle class people across the country by involving the private sector, and has assured that emphasis will be placed to facilitate the flow of institutional funds for affordable housing.

However, apart from a combination of all these factors, the industry needs further stimulus to move ahead on the road to recovery. "The pace of introduction and implementation of favourable government measures, 'better pricing' and 'innovative product & schemes' by developers supported by 'lowered interest rates' by banks will chart the course towards recovery in its true sense. An overall improvement in investment climate is essential for recovery," says Bansal.