The worst phase of slump may be over
Real estate
By Vasu

AFTER a gap of nearly four years, the mood of the real estate market has turned to cautious optimism. This is not to say that property prices, which have suffered on an average nearly 50 per cent fall in values all across major towns and cities of the country, have bounced back. But the worst may be over, says Padam Singhal, a realtor who sells designer flats in the Capital. If one considers global real estate recessionary patterns, the trend is that a recessionary phase in a property cycle lasts on an average about three and a half years. With the Indian downward spiral beginning somewhere in the second half of 1995, the worst phase of the slump is probably over, he argues.

There has been a distinct rise in the number of transactions in the Capital. Though the prices are still at the earlier levels and in the case of private builder flats have even fallen further due to the immense backlog available in the market, the buyer interest is definitely there. In certain areas of the Capital where the demand for luxury flats is high, there has even been a slight revival in price, he adds. Around a year back a 350-sq. yard plot in a posh South Delhi colony which should have normally fetched Rs 3.5 crore from a builder was placed between Rs 2.5 crore and Rs 2.75 crore. The same kind of plots today are being rated above Rs 3 crore. While this trend in the upper end of the market is not an indication of the total property scene, a section of the buyers who had been putting off purchases, anticipating a further fall in the market, have begun to show interest again. The demand in the middle and lower end segment is picking up, with the buyers’ market firmly in place for at least the next six months. Today good bargains and options are available, especially regarding payment schedules.

Commercial leasing and buying has also suddenly picked up, and the rates continue to be low and attractive due to the availability of commercial space in abundance across the country. Another immediate factor for the rise may also be the fact that the winter season is traditionally the time for the multinational companies and NRIs to enter the market. In the North especially, the Indians abroad return to pick up holdings in their native villages. For nearly two years now the NRI investors have stayed away from this region, and dealers here feel that this year they will definitely make purchases, says K. K. Arora, a property dealer in Panchkula.

Reforms and the ongoing changes in lending and investment norms in the housing sector are also contributing towards greater investor confidence. The economic recovery, increased domestic inflow, better stock prices and the passing of the Budget policy also seem to be driving the market to a more favourable direction.

If one checks out the key factors (see box) influencing the market,one will notice that there has been a massive change since the acceptance of the Union Budget proposals on housing, which have probably been the single largest contributing factor for the housing sector to pull itself up. The government today allows 40 per cent depreciation to companies for housing schemes for its employees. The housing finance sector too has seen an increase in the fund inflow, which along with the Central Bank scheme allowing Rs 10 lakh housing loan to be treated as priority sector advance as compared to the earlier limit of Rs 5 lakh,has resulted in a spurt in housing finance. Also the removal of loan amount ceiling for banks will result in more lending at more flexi rates.

Though several reforms have been carried out, the needs of the housing sector are of a large magnitude. The country needs Rs 1500 billion for housing and another Rs 2500 billion for infrastructure development.

Obviously these funds are not available in the Indian market and have to be sought from outside. Thus the issue of allowing Foreign Direct Investment to meet the housing target of 2 million houses every year by the government, assumes critical importance. With the proposal awaiting clearance from the Union Cabinet, it is just a matter of time before the good days of property market return, feels Singhal.