During 2011, a combination of factors such as high inflation, high interest rates, rising prices, uncertain global economic conditions and controversies over land acquisition had put pressures on the Indian real estate sector. However, despite economic slowdown, the sector has shown recovery and positive outlook in last 3-4 months on account of improvement in global investor sentiments and improvement in Indian macro-economic conditions such as fall in inflation rates, pause in interest rate hike followed by reduction in cash reserve ratio (CRR), etc.
Despite improvement in the overall market sentiment, the flow of funds has become a concern for the real estate developers in recent times that are unable to bring down their debt. The net debt of India’s top 11 listed real estate companies at the end of December 2011 rose 14 per cent from a year ago to Rs 41,700 crore. Even monetisation of land, sale of non-core assets or strategic sale in projects has not helped much.
Further, the gross bank lending to the real estate sector has also slowed to 11.6 per cent in 2011 from 15.7 per cent in 2010. With the Union Budget 2012-13 scheduled to be unleashed on March 16, the real estate developers, faced with severe credit crunch, are expecting suitable reforms.
With regard of availability of foreign funding, the developers would expect the Government to liberalise FDI norms for investment into real estate sector and to allow External Commercial Borrowings (ECBs) for real estate projects. Further, the real estate developers would also await grant of industry status to the sector.
Now the real estate sector is hoping for announcement of fiscal and policy reforms in the upcoming Budget that will stimulate the demand and provide much required momentum to the sector. Real estate sector, being a key trigger to the urban development and support to several other industries, apart from being capital and labor intensive, should look for Government’s support to further capitalise on the recent improvement in the Indian real estate market.