Why real estate developers are down but not out from the market

Last week, the Supreme Court ordered two real estate giants DLF and Parsvnath Developers to compensate flat buyers for delay in delivery of houses in Chandigarh and Delhi, respectively.

While DLF was asked to pay a heavy fine to buyers, Parsvnath got away with a lesser punishment. DLF will have to cough up a penalty interest of 9 percent to home buyers who were promised possession in 2013. Earlier, DLF had successfully contested the 12 percent penalty that National Consumer Disputes Redressal Commission had slapped on it.

Parsvnath, which suffered losses of Rs 400 crore last fiscal year, was asked to refund money to some 70 home buyers who had booked flats in its Ghaziabad project. In this case, the delivery was promised in 2011. And Parsvnath has made no bones about its lack of funds. Early in August, Unitech, too, expressed its inability to pay back the customers over delay in Noida and Gurgaon projects.  But all is not lost for the real estate sector. Green shoots are visible. The Indian realty market, which has been in a slump for the last five to six quarters, is on a recovery path, believe analysts. True, the sector has been plagued by issues of finances as well as incomplete or delayed projects in recent years. But that is about to change, they contend.

A joint survey by Frank Knight India and FICCI titled ‘Real Estate Sentiment Index ’ reveals that a large chunk (about 95 percent) of people now believe sales volumes in the residential [market] are already on a path of recovery. The survey was conducted during the April-June period this year. “After a lull that lasted six quarters, the future sentiment scores are strengthening and witnessing a similar trend as [seen] during the first quarter (Q1) of 2016,” said Knight Frank India’s chief economist and national director, Research, Dr Samantak Das in a press statement. While sales are expected to improve, investors feel that the prices will remain muted in 2016. Residential prices are expected to stay at the same level or worsen further as per the survey.

On the other hand, the commercial office market segment is expected to improve in the next six months. A previous report by the Frank Knight (India) revealed that housing prices in the country’s top eight cities have been stagnant for the last eight quarters. Housing demand, too, has been muted. The report further states that unsold inventory in the second half of 2015 were about 691,000 housing units in different stages of construction. Consumer sentiment has also been down due to delay in delivery by real estate companies.

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Real estate dealers also expect the upcoming festive season to boost residential sales across the country. Already stressed margins as well as expectations of a rise in demand will prevent developers from lowering prices from current levels. Besides, successful implementation of government initiatives like Housing for All, Start Up India and Smart City projects are bound to benefit the realty sector.   Real Estate Investment Trusts — (REIT is a company that owns or finances income-producing real estate) — will be a big boost for investors in the real estate market. With a move to remove hurdles for investors in real estate, the government announced in the Union Budget that it would do away with Dividend Distribution Tax (DDT). This had been a bottleneck in REITs getting listed in India. Soon after, REIT norms were relaxed in June, allowing these trusts to invest in under-construction projects.

In the light of positive sentiment, the sector could heave a sigh of relief. But questions still remain over the unfinished and undelivered projects. Recently, states have begun cracking the whip on errant developers. In Maharashtra home buyers can now file an FIR with the police and have the errant developers arrested. With such harsh measures being introduced, developers will think twice before delaying possession.

Source: Money Control

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