While the buyers have not yet found confidence in the real estate market in India, investors have been betting on the forthcoming “Acche Din” in the sector. This is evident from the significant investments the sector has been attracting underlying the growth potential.
India’s property sector has received a whopping $2.8 billion in private equity investments during the first nine months of 2015. This is the highest investment seen in the last seven years since the peak of 2008.
Clearly investors including private equity, pension and sovereign wealth funds are regaining confidence in India owing to strong indicators signaling a revival in the real estate sector on the back of several initiatives by the central government.
But is this all for real? Yes, it can be, provided the sector overcomes challenges including delay in approvals, inventory overhang and most importantly, debt pressure that has been deteriorating credit metrics of realty developers.
While the government including civic bodies has been moving further on simplifying processes and ease of doing business, developers have a task at hand with regards to their debt stress. They need to concentrate of the ticking bomb of debt that can explode any moment.
Rs 30,000 crore! That’s the debt obligation faced by the country’s top 25 realtors comprising as much as 95% market capitalization of this sector. And now they are facing high refinancing risk. All this due to the sluggish demand in the market and financial mismanagement by the builders themselves.
There are chances of developers escaping from this debt trap if they are able to push sales through combination of measures of intelligent pricing and right product offerings.
Moreover, the government is also doing its bit to help developers by regulatory easing that includes measures on foreign direct investment (FDI). So this bounty of investments that have already been infused in the market and expected further inflow should be utilized by the developers wisely and to dabble further in land banking.
Developers, at least now, stick to right market, right product and most importantly right price.