May 25, 2024

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Challenging Phase for Indian Real Estate

Analysts may be asserting that the US sub-prime crisis won’t affect India, the real estate sector is perhaps the first one that denies the claims. Following the meltdown in the US housing markets, Indian real estate companies have shed about 35 per cent of their market capitalization, reports say.

The real estate companies, listed on the Indian stock exchanges, are currently valued at a rate 20-35 per cent less than the value they were holding some six month back.

Earlier, it had been said that the developing countries of Brazil, Russia, India and China (BRIC) won’t be affected much of US sub-prime crisis although things have started turning sour just a few months down the line.

Inflation sucks

After touching the 5-year low of 3.08 per cent in October 2007, inflation rose to 40-month high of 7.41 per cent in the first week of April 2008. Such steep rise in price index in a short span of six months exhorted RBI to hike the Cash Reserve Ratio (CRR) by 50 basis points to 8 per cent.

So, what does Indian real estate industry got to do with that? Well, this move of Central Bank will soak Rs 18,500 crore from the markets. The banks, in turn, may increase lending rates, in order to manage their volume of revenue out of the shrinking lending base. And if the interest rates on home loan are hiked, the residential property sector, that is already undergoing a dull phase, will further get into a crunch.

Soaring costs

Apart from the global economic turbulence, the Indian real estate companies are also facing pressures of rising cost of production. Steel prices, for construction grade products, have risen by staggering 20 per cent in March alone. Similarly, cement-the most-used commodity for construction-has also got expensive by 3 to 4 per cent, in the past couple of months.

According to industry experts, the Indian real estate companies will be sandwiched between liquidity crunch and soaring costs, in 2008-09. Challenging phase on for the sector.

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