As per the latest trends in the Indian Real Estate sector, property developers might find it difficult to sustain consistency in property sales. With the focus shifting onto affordable housing, developers are facing low sales in mid-level and premium housing segments.
This phenomenon is leading to housing units piling up and as a result, the inventory of unsold units is going higher. Thanks to improper financial leveraging and inefficient management of business operations, the growth of real estate firms slowed down with the property developers facing severe debt obligation.
In order to fulfil their debt obligationreal estate developers will have to increase their sales by 2.5 times. This can be a tough task looking at the consistency of the volumes of sales.
All these developments indicate the market leaning towards the buyer’s interests, with developers being forced to keep prices low in order to get out of the debt crisis that they are in.
The major problems that property developers are facing in 2019 would be the lack of funding which started a couple of years ago. Gone are those days when developers could collect an advance in payment from homebuyers and sort their finances. It’s not like funding from private equity investments and finance from banking and financial institutions are looking any better for property developers in India.
Compared to the earlier years in this decade, the demand for premium homes has come down. Also, with the Government of India implementing the Housing for All initiative proactively, the prospects for Homebuyers are looking bright. Another aspect affecting all these factors are banks hesitating to finance construction projects by real estate developers, thanks to the new reforms introduced by the Reserve Bank of India (RBI) a couple of years ago.
Interestingly enough, Non-banking Financial Companies (NBFC’s) forayed into lending to property developers but with the recent NBFC crisis taking a drastic turn, NBFC’s had to restrain from financing real estate projects.
Basically, the new RBI guidelines brought the risk associated with lending to real estate up hence, the market refrained from lending to property developers.
As per the latest news in the Indian Real Estate sector, the NBFC’s financing to property developers is a whopping 60% from the earlier 30% of the total finances obtained.
Besides this, the total debt of property developers has risen evidently from Rs 1.2 trillion to Rs 4 trillion in the year 2018. What’s left to be seen is the fresh liquidity from NBFC’s into this sector.
As per the reports by Liases Foras, the inefficiency in this sector is exposed by the lack of financing. Even though there has been phenomenal growth in the debt and inventory of property developers. What’s happened is that developers have borrowed heavily from various sources and built homes, increasing the stock in the market immaterial of the lack of productivity. What’s worse is the dead sales prospects have affected developer’s prospects to meet their debt obligations.
Developers are going through difficult times, borrowing at higher rates to repay their outstanding debt. Eagerly waiting for the NBFC crisis to settle down, they are looking forward to the market returning to normal.
According to the latest trends in the Indian Real Estate sector, it can be seen that homebuyers are exhibiting caution. This can bring sales down. What’s positive for homebuyers is the fact that future prospects of price appreciation are weak, which indicates that the property prices will be in check.
Thanks to all this, developers have been focusing on construction projects that are still in the construction phase instead of newly launched projects. That’s the reason developers are now proactively working towards sales of the unsold inventory of homes.
Looking at this scenario, homebuyers have been taking advantage of desperate property developers. Negotiating huge cash discounts from developers favourite, the market is completely favouring homebuyers. Given its vast population, India has a vast demand for housing that will grow massively in the coming years.
This means that if the pricing is right, sales will flourish. Hence, developers are easily willing to negotiate on pricing more easily than before.
The endgame in case of low sales would be that developers would have to sell their residential projects at low prices or to big cash-rich developers.
Homes247.in Experts View:
We at Homes247.in suggest our homebuyers to plan rightly and maximise their savings by investing in ready to move in homes.
2019 is definitely the time for homebuyers and hence we strongly encourage them to buy properties for sale.
With the current scenario in mind, one can say that developers are in a helpless situation and the negotiation aspect will favour the homebuyers only.