Slump? Here’s why the property prices are locked
Financial leveraging is important for businesses and their growth, but if not managed efficiently it can backfire, as can be seen in the case of real estate. Developers are finding it difficult to service their debt obligations because of low sales and high inventory.
According to a recent report by Liases Foras, a Mumbai-based real estate rating and research firm, “Developers have to scale up sales by 2.5 times to service debt obligation.” However, increasing the sales figure is a tough ask for developers who are finding it difficult to even sustain the current sales volume.
It’s unlikely that sales will improve significantly anytime soon which in turn means that developers will find it difficult to get out of the debt trap they find themselves in. From a homebuyer’s perspective, this will keep property prices in check.
For developers, funding has become a major problem over the last few years.
Gone are the days when advance payment from homebuyers and investors were enough. Other sources like investment from private equity and financing from banks are also not easily available anymore.
While demand from homebuyers has come down significantly, investors don’t find real estate attractive enough. Also, following the Reserve Bank of India (RBI) guidelines a few years ago, which increased risk associated with lending to real estate, most banks restrain themselves from financing real estate developers.
As banks stepped back, non-banking financial companies (NBFCs) started financing the developers, but the recent NBFC crisis has hit that source too.
Until 2018, the NBFC share was robust. “NBFCs share increased from about 30% of total financing to real estate developer to 60% now,” said Samantak Das, chief economist and head of research, JLL India, a real estate consultancy firm.
Besides increase in share of NBFC, total debt of developers also increased significantly from Rs 1.2 trillion in 2009 to Rs 4 trillion in 2018. Fresh flows from NBFCs are a matter of concern.
According to the Liases Foras report, “The existing scenario has exposed the inefficiency within the sector. While debt has grown in a monumental manner and so has inventory, sales did not go up in the same proportion. Having borrowed money from different sources, developers kept adding housing stock into the market without any productivity. Since sales remained abysmal all this while, developers are finding it difficult to meet their debt obligation at this point.”
According to the report, there is an inventory of about 41 months in top eight cities (see graph).
It’s a desperate time for developers. “Many are raising finance at higher rates to repay existing debt as they are expecting the dust of the NBFC crisis to settle within a quarter or two and things to return to normal,” said Arvind Nandan, executive director-research, Knight Frank (India).
FROZEN PRICES OF PROPERTY
According to a joint report by Ficci-Naredco-Knight Frank Real Estate Sentiment Index Q4 2018, “The stakeholders have opined that the buyers are still in the wait and watch mode which will dampen sales. Future sentiments for price appreciation, however, remained marginally down, indicating that the sector does not expect any price rise in the coming six months.”
In the last couple of years, developers have focused more on completing under-construction projects instead of launching new projects. Also, clearing existing inventory is a major challenge, especially in NCR, as most of it is situated in far-flung areas.
At this stage, potential homebuyers are negotiating for cash discounts instead of other offers that developers are offering. “India, given its large population, always has a huge latent demand for housing. If the pricing is right, sales should happen. Developers today are more willing to negotiate on prices compared to a few years ago,” said Nandan.
If things don’t improve, developers may have to look for options that can work to the advantage of buyers to some extent. “If sales remain slow, many developers would have to sell their projects to larger or cash rich developers,” added Nandan.
WHAT SHOULD YOU DO?
If you are planning to buy a house for end use and make the most of the real estate slowdown, choose from the ready-to-move-in inventory.
Besides eliminating risks like delay in construction, you will have a fair idea of what you are getting in terms of amenities, view from the apartment, construction quality and so on. “Negotiation will be absolutely skewed towards homebuyers, developers are ready to bring down prices either directly or through offers and freebies,” said Das.
If that doesn’t work out, look for projects that are near completion. For a recently launched project, go to the RERA website to check the details. Gather information related to the developer’s debt situation and source of funding.
Breaking News: Silicon Valley Bank’s Collapse Sends Shockwaves Through Financial World – Is India’s Banking System Next to Crumble?
Are Indian Banks Ready to Face the Heat of Rising Interest Rates?
As Silicon Valley Bank (SVB) faces the heat of collapsing amidst rising domestic interest rates, Indian banks are left wondering if they are next in line. With the Indian economy still recovering from the COVID-19 pandemic, the prospect of rising interest rates could lead to a devastating blow to the country’s banking sector. Will Indian banks be able to weather the storm or will they collapse like SVB?
Indian banks have already faced a tumultuous few years with multiple frauds and defaults taking place, leaving many questioning their resilience. With the Reserve Bank of India (RBI) indicating that it may hike interest rates in the near future, the pressure on Indian banks is set to increase. The question remains – are Indian banks prepared to face the heat of rising interest rates or will they buckle under the pressure? Only time will tell.
Delhi: Businesses can now remain open 24×7, over 300 applications cleared by L-G
From restaurants to transport services and BPOs to online delivery services, all those who apply for exemptions will be allowed to operate 24×7 in Delhi starting next week, with Lieutenant Governor V K Saxena approving the proposal to exempt 314 such places to operate all day long, some of them pending since 2016, officials said.
“The L-G has directed that notification to this effect be issued within seven days. The decision of providing exemption under Sections 14, 15 & 16 of the Delhi Shops & Establishment Act, 1954, is expected to boost employment generation and promote a positive and favorable business environment that is a prerequisite for economic growth. The decision will also provide a fillip to the much desired ‘nightlife’ in the city,” said an official.
Swiggy Instamart figures, Mumbaikars ordered 570 times more condoms in the last one year
Customers are also ordering medical-related things through online shopping platforms. In metros like Mumbai, Hyderabad, Delhi, and Bangalore, people are buying goods online in large numbers. People living in metro cities including Bengaluru, Delhi, and Mumbai ordered an average of 6 million eggs in the last year.
These days people are doing online shopping fiercely in the country. Through Grocery Service Platforms, the goods of need are easily reaching people’s homes. From vegetables to medicines, just a few clicks on the smartphone are reaching people’s doorsteps. According to a survey, Swiggy Instamart has provided service to more than 9 million users between June 2021 and June 2022. In metros like Mumbai, Hyderabad, Delhi, and Bangalore, people are buying goods online in large numbers.
Healthcare products orders
Customers are also ordering medical-related things through online shopping platforms. According to a survey, Mumbaikars have ordered 570 times more condoms in the last 12 months. At the same time, in 2021, Instamart received orders for about two million sanitary napkins, menstrual cups, and tampons. Apart from this, a lot of orders have also been received for grocery items.
56 lakh packets of noodles ordered
According to the survey, between April and June last year, there was a 42 percent increase in the demand for ice cream in these metro cities. It was also learned that most of the orders were placed after 10 pm. In metro cities, people have ordered 5.6 million packets of instant noodles. In Hyderabad, users ordered around 27,000 bottles of fresh juice during the summer months.
60 lakh eggs ordered
The demand for eggs has increased manifold in the last two years. People living in metro cities including Bengaluru, Delhi, and Mumbai ordered an average of 6 million eggs in the last year. According to the report, customers from Bangalore and Hyderabad ordered the maximum number of eggs for breakfast. At the same time, people of Mumbai, Jaipur, and Coimbatore have ordered the maximum number of eggs online at the time of dinner.
Demand for dairy products
There has been a huge jump in orders for both tea and coffee. According to the report, there has been an increase of 2,000 percent in its demand. At the same time, 3 crore orders of milk have come for milk. People from Bangalore and Mumbai have placed more orders in the morning. Regular milk, full cream milk and toned milk are the most ordered dairy products.
Ordering fruits and vegetables
Orders for 62,000 tonnes of fruits and vegetables have been received in the last year. With 12,000 orders, Bengaluru tops the list of organic product buyers. At the same time, Hyderabad and Bangalore together have ordered more than 290 tonnes of green chilies in 12 months. Over 2 lakh orders have been received for bathroom cleaners, scrub pads, drain cleaners, and more in the last year.
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