New Delhi: Things started to go wrong in 2008 for the Indian real estate industry. Thought the year began on a good enough note with big land deals like the Rs5000 crore BPTP deal in Noida for 95 acres and Rs2,250 crore Adani-HDIL deal in Bandra-Kurla Complex. But by the end of the year, a slowing economy, high cost of construction and land, the global financial crisis and the fast drying up private equity investments spoiled the developer’s party.
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With interest rates climbing, even residential buyers abandoned the market. Commercial real estate deals slowed down as well. The lack of demand caused developers to cut prices and hand out discounts to lure back customers. As liquidity too became scarce, developers had to borrow at unprecedented rates of 2% to 4% per month. Some resorted to desperate measures such as selling assets to service their loans.
By September developers were feeling the heat. A survey by Federation of Indian Chambers of Commerce and Industry and Ernst & Young stated 62% of developers and financiers agreed that the Indian real estate industry was in dire straits. A slowdown in sales was recorded across all the sectors of the industry. Residential property took a severe beating and retail suffered as well
By the end of the year, the market capital of real estate companies saw a sharp decline. The 14 most prominent listed real estate companies saw erosion ranging between 79% and 95%. DLF Ltd and India Bulls Real Estate recorded erosion in market capitalization by almost 80-85% between 3 December, 2007 and 3 December, 2008. Other major players namely Omaxe Ltd, Parsvnath Developers, Ansal Properties, too saw a decline of nearly 86-90% in the same period.
With these developments, the focus of the sector has shifted back to low cost housing. The government too has taken measures to encourage growth by cutting interest rates for loans below Rs20 lakh.
However, the outlook for 2009 remains bleak. Experts expect demand to sputter as the over all economy slows down. Developers will also have to accustom themselves to thinner margins and concentrate on developing affordable property.