Lack Of Movement Foreseen In Real Estate Sector In FY16

<p><em>Slothful economic growth and high property prices have resulted in falling unit sales, says <strong>Arshad Khan</strong></em><br><br><br>The country’s real estate sector has been in a limbo for some time. Burdened with loans and a sluggish economic growth has made it nearly impossible for general buyers to invest in projects. Study and reports by various agencies also confirms less chances of improvement for the sector in the years to come.&nbsp;&nbsp;&nbsp; &nbsp;<br><br>A recent study by a rating agency Fitch group (Ind-Ra) affirmed that the country’s real estate sector will continue its current stand-still state in the years to come, maintaining a negative to stable outlook on the real estate sector for FY16.<br><br>According to reports, the prime reason for the sluggish growth of the sector will remain the lower demand and unaffordability. Slothful economic growth and high property prices have resulted in falling unit sales.<br><br>Data released by RBI for the sector deployment of credit to various sector also reflects that lending to real estate sector is below the overall lending. As per data, the overall lending by banks grew by 8.5 per cent during a period of one year ending 29 May 2015 compared to lending by banks to commercial real estate which grew by just 7.5 per cent in the same period. The primary reason was public sector banks have accumulated high amounts of bad loans and are being cautious in lending new loans.<br><br>Inability to pay back loans has reduced banks' confidence in real estate sector. Major players of the sector are restoring to other means to complete their unfinished projects and fend off debts. Big companies are offering high returns on equities to attract more investors.<br><br>For instance, the country’s largest real estate firm DLF's net debt stood at Rs 20,965 crore as on March 31, 2015, up by Rs 628 crore from Rs 20,336 crore at the end of the October-December quarter. DLF has proposed to raise Rs 5,000 crore via non-convertible debentures, including other debt securities, on private placement basis for long-term resources for business needs and to reduce reliance on the banking system. In other words, in hopes to increase its revenue and reduce the level of debts via fresh bank-free raising.<br><br>The government too has shown its intention to improve the present condition of the sector and bring in more transparency. But the proposed amendments face protests. Blamed with anti- buyer reforms, the government has a mammoth task of uplifting the sector and acting on the best interest of marginal buyers and land holders. The sector is often blamed with delay in project completion and as a pumping zone for black money.<br><br>Improvement in property demand largely depends on a positive change in consumer expectations of economic growth, job and income prospects and also lower property prices. Property prices have remained high and are unaffordable to end-customers. While economic growth is likely to improve in FY16, property prices might not correct. This could lead to end-customers postponing purchase decisions, thus stagnancy will prevail in the sector.<br><br>&nbsp;</p>