After growing at a fast clip during the last few years, the real estate sector in India appears to have hit a rough patch. Property prices across major cities in the country are witnessing steep corrections amidst a slowdown in demand from buyers, who in turn have been hit hard by the rising cost of home loans on the one hand, and inflation on the other. However, realtors have another issue to worry about: the credit crunch. Globally, as the banking sector has been hit hard by the US subprime crisis, banks are taking a cautious approach and reducing their exposure to the realty sector. Further, as banks in the US and elsewhere are writing off billions of dollars in bad loans, it has led to a severe credit crunch worldwide. To avert liquidity crisis and also to rein in food and oil prices-led inflation, central banks, globally, are resorting to tight monetary policies. Turmoil in financial markets has also effectively meant that realtors cannot access IPO market to fund their projects.
All this has had a telling impact on the real estate developers in the country. As the sources of funds have dried up, many builders have been forced to borrow at exorbitant rates, while many others are either going slow on their future projects or in extreme cases have shelved some of the projects. According to a recent report in The Economic Times, property prices have crashed by almost a fourth in major metros like the National Capital Region (NCR), Mumbai suburbs, Bangalore and Hyderabad. "Poor sales and lower availability of credit at higher cost have prompted property developers to end the mad rush to acquire land," it said. |
