The Supply Factors
Things are not hunky-dory on the supply side either. Part of that has been reflected in the stock prices of real estate companies, some of which have fallen 95 per cent from their peak.
The market has factored in the trouble such companies are in at present. Like buyers, companies, too, have been affected by the liquidity crunch. And the current housing stock is languishing.
Liquidity Crunch
During the boom, the developers had many options for raising funds -- borrowings from financial institutions, share issues, the booking amounts they took, and private equity.
"Banks exposure to the real estate sector (developers) has also taken a hit. They are not ready to sanction future loans and this has resulted in future supply getting affected," says Hiranandani. The lull in the stockmarket has closed off the IPO route. With buyers staying away, booking money is hard to come by.
"Sales of residential units have been severely affected," says Akshaya Kumar, founder and CEO, Park Lane Property Advisors, Mumbai. Most developers felt that demand would pick up during Diwali, but it did not happen, says Jai Mavani, executive director-head infrastructure and real estate, KPMG India.
A study by brokerage firm India Infoline says: "DLF could meet a large portion of its refinancing requirements from the non-DLF Asset (DAL) receivables. The situation remains precarious for others in our coverage, among them Unitech, Sobha and Puravankara. Omaxe, Parsvnath and Ansals also look weak."
The resulting liquidity crunch is biting even harder since many developers had overleveraged themselves during the boom phase. Now they do not have funds to go through with their existing projects. They have deferred future projects.
The worst part is that most of them have to pay off accumulated short-term debt. Now, financial institutions and banks are getting jittery about recovering their money and putting pressure on developers to cut prices and clear inventory to honour the debt repayment obligations.
Image: Indian labourers are silhouetted against a sunset as they return home after day-long work at a construction site in Chandigarh. | Photograph: REUTERS/Ajay Verma
Also read: Consumer confidence: Asia's top 10 nations
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