BW Communities

High Rates To Hit Realty Margins...

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Indian real estate firms expect a hit on margins for the next few quarters as the central bank's move to raise interest rates this week will push up costs and keep potential buyers away from the market. Developers, already facing a demand slowdown, have refused to lower the priceline as they seek to make up profits despite high land costs and curbs on funding. However, higher interest rates in the economy could push them to choose survival over pride. The Reserve Bank of India late on Tuesday raised its key lending rate and cash reserve requirement by 50 basis points each to curb price pressures. Inflation jumped to its highest in more than 13 years in mid-June to 11.42 percent. As a result, lending rates of banks are seen close to 13 percent, levels last seen nearly a decade ago, while interest rates on home loans could go up by 50-100 basis points, putting off a large segment of middle-class buyers. "Real estate prices had already started slackening, this move will lead to more slowdown," said Ramesh Jogani, managing director at IndiaREIT Fund Advisors, which has invested in several projects. "We see a 15-20 percent fall in prices." Analysts say the slackening of demand is raising concern over future realisations, which is reflected in the performance of real estate stocks, with most close to their lowest level in a year and 40-60 percent off their peaks. "In the near term, we think affordability will be a bigger driver and a 20 percent correction in property prices will be needed by the year end to revive volumes," UBS Investment said in a research note. The report, issued before Tuesday's rate hike, has lowered price targets for DLF and Indiabulls Real Estate. "The potential for exponential growth may be delayed. Growth may be down 20-30 percent," said Kunal Bannerjee, President Marketing, at New Delhi-based Ansal Properties & Infrastructure. He expects a 5-10 percent hit on margins for new projects, but rules out any immediate need to cut property prices. Larger developers say margins are healthy enough to absorb any short-term blip, and demand though lower, is strong enough for the forseeable future. "India needs a lot more homes and offices. The real estate industry will not die down tomorrow. These are just cyclical things," said J.C. Sharma, Managing Director of Bangalore-based Sobha Developers. "I am not worried about real estate as a business." (Reuters)