Thursday, January 7, 2010

HOW REAL IS THE REAL ESTATE FOR 2010


One evening I was sitting in my lawn relaxing suddenly the cell phone of mine rang I found my best friend called me up and howling and crying over the phone. He was saying so many things in one time that difficult for a lip reader also to understand what he was saying.
After some time I learnt that he got in a position where he is in a position to bankrupt. On further query I came to know the whole story of his loud voice of animal growling. He was into real estate business and he took two projects where construction was going and had taken a loan from around Rs.5cr and all his money is invested in construction and he is not getting any buyers for his residential flats. He also needed some more funds for the pending works and banks are reluctant to lend further at the same time his flats were not getting sold. He was in a terrible situation at that point of time. I finish the story here without going into further details.
This story belonged to all those real estate developers who were standing on the verge of death on 2008. Tough lending norms, an unfavourable primary market and subprime woes squeezed the money flow to the domestic property market. All the sources of funds got stopped during the recession breeze.
Real estate sector was the hardest hit sector in 2008 recession. The sector went into a tails spin when all sources of funds got blocked up. From those levels now in 2009 we have been able to change the outlook and strategy of the real estate sector.



The journey till 2009 and further.
In 2010 we will get a host of new structures of projects coming from real estate sector. One of the major growths that we will get from real estate sector is the affordable housing projects. Apart form them we also found some more factors behind a reasonable growth from the sector. The flood of buyers came in and developers sold properties at lower rates with marginal profits, which was a win win situation for both the developers as well as buyers, especially in the housing sector.

Among all these the Indian real estate sector was able to draw funds from overseas when the western economies were struggling with mortgage properties.

• Indian real estate sector has attracted cumulative foreign direct investment (FDI) equity inflows of $7.3 billion.

• Funds raised by realty-focused private equity firms declined significantly by 70% so far this year as investors exercised caution for making fresh investment commitments. A total of 93 funds reached a final close in 2009, receiving commitments of $40.5 billion.
• Private placement of shares, asset sale, initial public offerings (IPOs), external commercial borrowings (ECBs) and foreign direct investments were the tools used for fund raising

• 16 real estate initial public offerings (IPOs) set to hit the market in 2010.

• Emaar MGF Land Ltd, Sahara Prime City Ltd, Lodha Developers Ltd, DB Realty India Ltd and 12 other realty firms have filed with the market regulator to raise funds through IPOs this year.

• These companies are set to raise over Rs 12,000 crore collectively.

• The revival is expected to accelerate from activities both in the residential as well as commercial spaces.

• Development of other asset classes like warehousing, logistics, tourism, hospitality, etc., will also boost real estate activity.

• Developments in the IT sector will also be a prime contributor to the real estate sector. As most of the demand of commercial property comes from this sector only.

Even The Confederation of Real Estate Developers’ Associations of India (CREDAI) have expressed some of the demands they want to get fulfilled this time as it was not entertained in the previous Union Budget 2009.Soem of them are

• Fiscal incentives for encouraging ‘Affordable Mass Housing’ in the country

• Exemption of direct and indirect taxes to boost ‘Slum Redevelopment’ initiative.

• Increasing deduction on interest paid on Self Occupied Residential House Property.

• Incentives to senior citizens on purchase of housing.
In the 3rd quarter results we found that the sector will post good returns. The much recovery is being witnessed from many resources.
1. The BSE Realty index has increased 135% in the past six months and has outperformed the Sensex by 47%.
2. The government gave a 1% interest subvention on home loans up to Rs 10 lakh for homes costing up to Rs 20 lakh.
3. The first 12 installments of all loans sanctioned and disbursed during the 12 months from the date of publication of the scheme will be eligible for interest subvention.
4. Improved demand in the residential segment, mainly in the metros of Delhi as well as Mumbai.
5. The situation in the commercial office space segment in 3Q CY09 seems to be more of a mixed bag with demand improving quarter-on-quarter (Q-o-Q)
6. In the last quarter of 2009-10fy we found that the developers found a growth of 40-50% in sales of residential ready-possession and under-construction properties across metros
7. There has also been a rise of about 5-10% in resale registration of residential apartments amidst the recovery in stock markets and the positive consumer sentiments.
8. So in this quarter we will also get such type of growth from this sector.

It is being well clear that we can go for investments in this sector with a long call as well as short term call. But as the sector is very sensitive to banking sector, any negative news can affect the short term outlook of the sector. But in long term its well clear that the real estate will finds its growth in 2010 from Affordable Mass Housing’ in the country.Only this factor will provide the golden fruits of real estate returns in 2010.

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