No possibility of further reduction
Navin M Raheja, MD of Raheja Builders, feels that the current prices cannot further go down, as it can only be possible through builders paying from his own pockets. Running one of the fastest growing companies in the realty sector, Raheja Builders in the past three years have posted more than 300 per cent growth. He suggests, the buyers should not wait as there is no possibility of further reduction and go ahead with purchasing their property, in an interview to Praveen K Singh.
How do you see the downturn in the real estate sector?
Over the last 3 years, the entire real estate marketing in India was mainly driven by investors and speculators in a way to gain more profit and money. They were rotating their investments and everyone probably thought that India has emerged to this level and is going to be the actual demand which can be feeded with the speculative prices. The time has taught a lesson and the developers should know that they are not invulnerable to financial bustles.
A person should buy a property only if he can afford to pay for it. We all forgot about this real truth and probably everyone was living in a fools’ paradise that the prices driven by speculators will continue to go the same way indefinitely. However, that not a reality. The basic principle tells that it’s the actual user and the depth of his pocket that ultimately decides the price of a property. As the speculator driven prices were spiraling, the asset valuations were also spiraling the same way. Riding on this speculative evaluation, the stock prices were also over valued.
I do not agree that the slow down in real estate is solely because of US recession which has eroded the market capitalisation of the Indian companies. The global meltdown has only triggered the correction and this turmoil is going to stabilise sooner or later based upon real valuations. Apart from over speculation, there are other factors such as FDI investors’ behavior, the hike in interest rates and inflation which have also contributed to this liquidity crunch. Over the last two months, the inflation has gone down and the government has taken several positive steps to revive the realty market. These include the reduction in lending rates of home loans from almost 13.5 per cent to 8.5 per cent. The reduction in inflation by almost half is going to generate more disposable liquidity which will certainly spur demand.
But, don’t you think they need to review the ROIs (return of investments) to some extent?
There are many factors which are compelling on developers. The first is when the assets were over valued; the developers had raised equities, investments and debts based upon these mortgaged valuations. Developers are hardly left with unencumbered assets which can give a cover up if the prices are officially reduced and consequently assets devalued. Incase the builders officially reduce the price, the security and margin cover ages are affected and need to be covered by additional asset portfolios as most of the assets have already been committed and put under mortgages.
The second factor is that the FDIs and private equities which came into play during the last three years are also raised on subsequent commitments. The devaluating of prices and assets will definitely create a difficult situation.
Thirdly, the developers are currently selling and launching the projects at such prices that are based upon true cost plus valuations. And if every cost is factored in, there is absolutely no possibility of bringing down the prices further. Certainly, the ROIs have been affected because of increase in holding time on investments by developers.
When do you think things will settle down?
It seems that the market sentiments have created over-caution. The current prices cannot go down further, if any developer brings them down, it can only be possible through paying from his own pockets meaning thereby that the developer is going to construct the project on loss basis and therefore, further reduction of prices will only mean extremely high risk whether the project will actually get completed or not. Here, I would like to give a piece of advice to the actual end use buyers that they should not wait as there is no possibility of further reduction in the prices and go ahead with purchasing their property.
Over the last 60 years, we have failed to provide planned, authorised, hygienic and quality housing to our countrymen. Thanks to our planning department, a common man in this country can only afford a Jhuggi or illegal construction. Lately, some of the state governments have woken up to the fact that like any other sector they have to remove the state’s control and monopoly from this sector as well and bring it more towards privatisation through public private participation. Some of the relaxations in population density norms etc. are being implemented by some of the state governments and development authorities and there is every likelihood that in next couple of month’s things will certainly improve upon.
How you plan to re-write the future of real estate industry in the country?
We are planning to build houses for every body in the country especially those who were lagging behind for several years. The company with the help of the Government is working seriously on affordable housing model which will create a benchmark in Indian Real Estate sector. With the initiatives of the Government and their support we will be developing more than houses for economic weaker sections and lower income group of people.
Source: http://www.expressestates.in
How do you see the downturn in the real estate sector?
Over the last 3 years, the entire real estate marketing in India was mainly driven by investors and speculators in a way to gain more profit and money. They were rotating their investments and everyone probably thought that India has emerged to this level and is going to be the actual demand which can be feeded with the speculative prices. The time has taught a lesson and the developers should know that they are not invulnerable to financial bustles.
A person should buy a property only if he can afford to pay for it. We all forgot about this real truth and probably everyone was living in a fools’ paradise that the prices driven by speculators will continue to go the same way indefinitely. However, that not a reality. The basic principle tells that it’s the actual user and the depth of his pocket that ultimately decides the price of a property. As the speculator driven prices were spiraling, the asset valuations were also spiraling the same way. Riding on this speculative evaluation, the stock prices were also over valued.
I do not agree that the slow down in real estate is solely because of US recession which has eroded the market capitalisation of the Indian companies. The global meltdown has only triggered the correction and this turmoil is going to stabilise sooner or later based upon real valuations. Apart from over speculation, there are other factors such as FDI investors’ behavior, the hike in interest rates and inflation which have also contributed to this liquidity crunch. Over the last two months, the inflation has gone down and the government has taken several positive steps to revive the realty market. These include the reduction in lending rates of home loans from almost 13.5 per cent to 8.5 per cent. The reduction in inflation by almost half is going to generate more disposable liquidity which will certainly spur demand.
But, don’t you think they need to review the ROIs (return of investments) to some extent?
There are many factors which are compelling on developers. The first is when the assets were over valued; the developers had raised equities, investments and debts based upon these mortgaged valuations. Developers are hardly left with unencumbered assets which can give a cover up if the prices are officially reduced and consequently assets devalued. Incase the builders officially reduce the price, the security and margin cover ages are affected and need to be covered by additional asset portfolios as most of the assets have already been committed and put under mortgages.
The second factor is that the FDIs and private equities which came into play during the last three years are also raised on subsequent commitments. The devaluating of prices and assets will definitely create a difficult situation.
Thirdly, the developers are currently selling and launching the projects at such prices that are based upon true cost plus valuations. And if every cost is factored in, there is absolutely no possibility of bringing down the prices further. Certainly, the ROIs have been affected because of increase in holding time on investments by developers.
When do you think things will settle down?
It seems that the market sentiments have created over-caution. The current prices cannot go down further, if any developer brings them down, it can only be possible through paying from his own pockets meaning thereby that the developer is going to construct the project on loss basis and therefore, further reduction of prices will only mean extremely high risk whether the project will actually get completed or not. Here, I would like to give a piece of advice to the actual end use buyers that they should not wait as there is no possibility of further reduction in the prices and go ahead with purchasing their property.
Over the last 60 years, we have failed to provide planned, authorised, hygienic and quality housing to our countrymen. Thanks to our planning department, a common man in this country can only afford a Jhuggi or illegal construction. Lately, some of the state governments have woken up to the fact that like any other sector they have to remove the state’s control and monopoly from this sector as well and bring it more towards privatisation through public private participation. Some of the relaxations in population density norms etc. are being implemented by some of the state governments and development authorities and there is every likelihood that in next couple of month’s things will certainly improve upon.
How you plan to re-write the future of real estate industry in the country?
We are planning to build houses for every body in the country especially those who were lagging behind for several years. The company with the help of the Government is working seriously on affordable housing model which will create a benchmark in Indian Real Estate sector. With the initiatives of the Government and their support we will be developing more than houses for economic weaker sections and lower income group of people.
Source: http://www.expressestates.in