Prices likely to be stagnant in the short term

  • Share

Mint
By

Ajit Krishnan
Partner and leader-real estate and infrastructure
EY

Will there be any effect of the current global scenario, especially in Europe, on the Indian real estate?

With the debt crisis in Europe lingering, investors are staying away from risky assets which unfortunately includes real estate. The prolonged debt crisis in the European Union has increased scepticism on the global growth story which is hugely impacting investor sentiment. Though the growth drivers of the Indian economy-industry and service sector-remain strong, a tight monetary policy needed to check inflation could moderate expansion affecting job creation and demand. Rising inflation coupled with high labour costs and negative investor sentiment are likely to have negative effect.

The Indian real estate is witnessing price stagnation. What may happen next?

The impending threat of another financial slowdown with rising interest rates have considerably slowed down buying activity. This has led to stagnation in prices. Until investor confidence restores and interest rates stabilize, prices are likely to stay stagnant in the short term.

According to the latest Ernst and Young-FICCI report, A new realty: Dissolving borders through cross-border integration, foreign direct investment (FDI) inflows into the Indian real estate has declined. Will this drop affect certain projects or the sector?

Increasing commodity prices, inflation and interest rates have pushed the real estate sector into a liquidity crunch. FDI was a way to bridge the gap. Most projects funded by FDI are in the larger cities. It will be new real estate activities in these major cities that will get impacted. Markets are likely to be impacted albeit to different degrees.

For instance, Mumbai market has shown resilience and sprang back at a surprisingly quick pace after the last recession. National Capital Region may be faced with an oversupply increasing the negative impact. Bangalore will continue to find demand as long as the information technology sector grows. Hyderabad is likely to be negatively impacted on account of the unrest due to the Telangana issue. Chennai has been a stable market with fundamentals for demand being strong. The impact is not likely to be much.

Developers are not keen on doling out freebies and discounts this festive season. What could be the reasons?

On the contrary, hit by the economic slowdown and higher funding costs coupled with labour costs, developers are eager to attract buyers. Developers are making pitches to attract buyers. Energies are being invested on ideation to position projects differently, especially in the luxury segment. These include positioning the project in terms of scale and engineering feat to designer homes by internationally renowned architects and interior designers to offering off beat facilities such as house keeping by hotel chains, launderette services, car washing facilities and even homes revolving around themes such as a sport with associated training. The pitch on differentiation is governed by the income category the project is targeting. For the mid-segment projects these offerings include free parking, club memberships or foreign travels.

A recent report from a secondary market research firm said that the proportion of affordable projects has gone down. Which way do you think that the market is headed?

Builders are presently grappling with rising costs of debts, land, labour and construction. All these conditions have put a strain on the tight margins of affordable housing projects, making it very challenging to offer a product below Rs. 5-6 lakh.