Buyer sentiment has not exactly been rousing for the real estate sector, which is counting on the festival season to bring the effervescence back again
The festive season in India, which begins around September and culminates with Holi in March, is considered as one of the auspicious periods for property purchase with builders looking to score decent sales. As many people start their process of home buying around this time, enquiries and bookings start touching a new peak, increasing by about 40-50% during this period. Real estate observers say it’s the time when the industry comes up with new offers and newer marketing & sales strategies to cater to the upsurge during this phase.
If the festive season is able to spur demand, it will spell good news for the real estate sector in India, which has been witnessing a dip in general demand and uncertainty over timely completion of projects in recent months. According to data compiled by research firm Venture Intelligence, private equity investment in India’s real estate sector declined by around 20.2% to $831 million (about Rs.3,740 crore) in the first five months of this fiscal due to sluggish demand. In comparison, PE players had pumped $1,041 million (around Rs.4,685 crore) into realty in the same period last fiscal.
According to industry experts, home registrations are down 30-35% in major markets like Mumbai compared with the previous year, which show that investors and homebuyers have been putting off their investing decisions. Rising interest rates on home loans and unbridled inflation across all sectors of the economy have forced prospective home buyers to hunker down and wait out the current economic uncertainty. Since March 2010, the Reserve Bank of India has raised interest rates 12 times by a total of 350 basis points, the fastest round of increases in RBI’s 76-year history. As a result, mortgage rates have gone up from around 8.5%-9.5% two years ago, to 11.5%-12.5% now and home loans that once took 15 years to pay back are now taking over 20 years to service. Even otherwise, the general economic health, which had been looking ruddy until a few months ago, has taken a turn for the worse. India’s gross domestic product declined to 7.7% in the April-June period, the slowest in six quarters while industrial output slumped to 3.3% in July, the slowest in 21 months.
With such economic clouds hovering above the real estate industry, it is uncertain whether sales during the festival season will pick up. Although historically property purchases especially on the residential front see a surge during the festive period, the wide disconnect between the expectations of buyers and sellers this time around may act as party pooper. Industry experts opine that in the current scenario characterised by high prices of homes and higher cost of home loans, buying a home has become a matter of choice and most home seekers are opting to wait and watch in the hope that prices might correct to more acceptable levels. According to Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India,“This has resulted in a rather prolonged period of vacillation among home buyers in India. The fall in sales has impacted the capital availability of developers, and we are going to witness widespread delays in the construction of the residential projects across segments.”
For more articles, Click on IIPM ArticleThe festive season in India, which begins around September and culminates with Holi in March, is considered as one of the auspicious periods for property purchase with builders looking to score decent sales. As many people start their process of home buying around this time, enquiries and bookings start touching a new peak, increasing by about 40-50% during this period. Real estate observers say it’s the time when the industry comes up with new offers and newer marketing & sales strategies to cater to the upsurge during this phase.
If the festive season is able to spur demand, it will spell good news for the real estate sector in India, which has been witnessing a dip in general demand and uncertainty over timely completion of projects in recent months. According to data compiled by research firm Venture Intelligence, private equity investment in India’s real estate sector declined by around 20.2% to $831 million (about Rs.3,740 crore) in the first five months of this fiscal due to sluggish demand. In comparison, PE players had pumped $1,041 million (around Rs.4,685 crore) into realty in the same period last fiscal.
According to industry experts, home registrations are down 30-35% in major markets like Mumbai compared with the previous year, which show that investors and homebuyers have been putting off their investing decisions. Rising interest rates on home loans and unbridled inflation across all sectors of the economy have forced prospective home buyers to hunker down and wait out the current economic uncertainty. Since March 2010, the Reserve Bank of India has raised interest rates 12 times by a total of 350 basis points, the fastest round of increases in RBI’s 76-year history. As a result, mortgage rates have gone up from around 8.5%-9.5% two years ago, to 11.5%-12.5% now and home loans that once took 15 years to pay back are now taking over 20 years to service. Even otherwise, the general economic health, which had been looking ruddy until a few months ago, has taken a turn for the worse. India’s gross domestic product declined to 7.7% in the April-June period, the slowest in six quarters while industrial output slumped to 3.3% in July, the slowest in 21 months.
With such economic clouds hovering above the real estate industry, it is uncertain whether sales during the festival season will pick up. Although historically property purchases especially on the residential front see a surge during the festive period, the wide disconnect between the expectations of buyers and sellers this time around may act as party pooper. Industry experts opine that in the current scenario characterised by high prices of homes and higher cost of home loans, buying a home has become a matter of choice and most home seekers are opting to wait and watch in the hope that prices might correct to more acceptable levels. According to Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India,“This has resulted in a rather prolonged period of vacillation among home buyers in India. The fall in sales has impacted the capital availability of developers, and we are going to witness widespread delays in the construction of the residential projects across segments.”
Source : IIPM Editorial, 2011.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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