The Indian economy witnessed a sea change during the last fifteen years; the real estate sector, too, saw some paradigm shifts. Despite the economic downturn, India is still one of the rapidly growing economies in the world. It has recorded a steady GDP growth averaging 8% in the past three years, which was primarily fuelled by rapid developments in its realty sector. However, with the ongoing financial crunch, cash flow has been restricted, and several construction projects have been put on the backburner bringing a lull in the sector.
Various factors had contributed to the upsurge in real estate, including economic reforms and liberalisation, heightened equity market activity, greater business opportunities, enhanced transparency, increasing demand, favourable demographics and funding through legitimate sources. Various policy reforms, such as allowing foreign direct investment (FDI) in the real estate sector, had further propelled this industry by opening new avenues of investment. Nonetheless, the volatility prevailing in the sector has deterred many players from expanding.
Till a few months back, India was one of most lucrative real estate markets. Today, it is in the doldrums. Stricter credit policies and lack of adequate funding are also acting as roadblocks. Today, the sector is highly fragmented, compounded by poor governance and limited credit flow.
Policymakers have realised that this sector could be an important source of employment and revenue generation. Subsequently, urban planning is considered as an extremely vital aspect of the realty segment. Raj Kumar Yadav, Director, Dayal Estate, a mid-sized real estate company in Gurgaon, says, “It is felt that proper planning, development and upgradation are much needed for the overall development of the infrastructure in the country. But the economic meltdown has severely affected builders like us. We are waiting for the situation to turn favourable so that we can commence new ventures. The last thing we want in this tumultuous period is more losses and poorer profits.”
Domestic and overseas investments in the Indian real estate sector have dwindled during the last few months, which has exacerbated the fall in the realty sector. There has been a lack of investment by developers, builders and commercial banks in this sector.
Eswara Murthy, Director, VKV Associates, a mid-sized real estate company in Coimbatore, says, “Several institutional investors are waiting for a lucrative opportunity. The real estate sector would only grow if the risks are reduced, thus compelling and convincing more investors to begin new ventures.”
Various infrastructure projects such as road construction and development of ports and airports, which necessitate huge funding, have also been shelved or deferred as a result of the liquidity crunch.
The slump in the Indian real estate industry is not limited to the metropolitan cities, but has percolated to the tier II, tier III cities and smaller towns as well. Nonetheless, it is expected that activity in commercial, residential, logistics and infrastructure sectors will soon kick-start.
Aparna Mitra |
