JLLM - Impact of RBI's credit policy / Slowdown? / The Sector's Future

- by Anuj Puri, Chairman & Country Head, Jones Lang Lasalle Meghraj

IMPACT OF RBI'S CREDIT POLICY ON THE SECTOR

• Sentiments in the sector will continue to be muted, especially in the residential sector, which has seen the highest price appreciations and is the most sensitive to non-amenable lending norms.
• Major developers who are flush with private equity and IPO-based money, further bulwarked by pre-sale monies and land banks, will not be as seriously affected as smaller players. They will not offer substantially reduced rates as they have prolonged holding capacities.
• Some smaller development concerns who have projects under construction will have difficulties in bringing these to completion.
• Some developers in certain areas may sell their products at lower rates, or choose to sell to speculative investors in bulk, at marginally discounted rates.
• Many buyers who were in wait-and-watch mode may continue to postpone their intended property purchases.
• Residential developers will begin to look more seriously at incentivized formats such as townships, while office space developers will consider the SEZ option. The extension of the STPI scheme by one year is not significant enough to make much of an impact.

SLOWDOWN ON THE REAL ESTATE MARKET

• There has been a slowdown in domestic transactions because an amalgam of reasons - overheating of prices in certain Northern regions, reduced liquidity among developers because of the credit crunch and a watch-and-wait stance among property buyers as they anticipate a blanket correction in the sector. This cannot be attributed solely to the credit crunch and the US recession. Interest rates were inflated to begin with.
• Certainly, the previously hoped-for sales volumes for 2008 will not materialize. However, lack of growth does not equal a setback – only a period of stagnancy.

US SUBPRIME CRISIS / REDUCTION IN FOREIGN INVESTORS

• As of now, foreign investors affected by the economic adjustments in the West see India's strong economic fundamentals and the continued strength of the real estate market as a desirable investment alternative.
• Nevertheless, many of them are taking a more calculated approach now, opting to wait until the present market fluctuations have been resolved and the scheduled infrastructure enhancement projects are launched.
• India - and for that matter China - represent an economic scenario that has evolved separately and on very different parameters from the economies in most developed countries. It is an emerging economy, with an emerging and maturing real estate market. There will be a fall, but it will not be of a magnitude comparable to that of other countries.
• Foreign investors are now justifiably awaiting greater transparency and stability.

FUTURE PROSPECTS FOR THE SECTOR

• India continues to be a boom country, but the boom is now assuming the properties of a controlled and focused explosion rather than the free-for-all market mayhem it previously stood for.
• Prices are stagnating and there may be a correction in many areas over the next one year. This, again, is not a blanket evaluation, and factors like specific location sector and property typology will play a significant role.
• Certain locations and properties and properties will continue to be in great demand.

Contributed By : Arun Chitnis