Friday, May 20, 2011

Impact of Real Estate Sector on Economy

2011 projects a stable growth for real estate sector in India though some experts reserve their opinion to some extent. According to report released by Fitch, the overall market demand seems to be improving and will remain stable in 2011. Like other parts, real estate in Pune will also reap the benefit out of it. The booming residential sector, driven by high growth rate and fast urbanisation, is considered to be the main driver of the industry as far as Pune real estate is concerned. However, the absorption rate may witness a dip in near future due to substantial increase in residential properties prices units. The withdrawal of teaser loan by the lenders and expected interest hike will further impact the market –feels Fitch.
The major boost in the commercial sector came from the renewed hiring by the IT and ITES since H2CY10. This is the fundamental demand-driver for office space in the country. However, the oversupply may be a marginal threat.
Regulatory measures by the central bank will have significant impact on real estate in 2011. Any increase in risk weights on bank lending to real estate companies would adversely affect the amount of funding available to the industry and cause liquidity problems, as the majority of the companies are highly leveraged and their dependence on debt refinancing is high.

Major lenders have already eliminated the teaser loan or are likely to act on withdrawing teaser rate schemes as per RBI guidelines.
In 2010 several real estate firms raised funds through IPOs and qualified institutional placements to meet their debts. Real estate firms investing in IPOs in 2011 may not witness the same enthusiasm due to lending scams uncovered in Q4CY10. Any failure to raise funds through equity segment will further push the real estate developers to depend on the banks and expose them to the RBI regulatory measures.

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