Credit situation of realtors and how it can affect property prices and buyers
Real estate market has been fighting tight liquidity ever since the global meltdown of 2009. Industry sentiments showed some sign of improvement in 2010 but a few subsequent episodes created doubt in the mind of policy makers. RBI moved quickly post the LIC Housing finance episode where it was alleged that HFCs were lending to developers for non-genuine reasons. To reduce bank exposure to sector, RBI imposed a risk weight age for all lending to real estate. At the same time, Private Equity [“PE”] funding to the sector also declined as the developers were unable to provide profitable exit to their investors. The accumulation of such events has lead to a tight liquidity situation for realtors in the Indian market.
In this scenario, developers are finding it tough to deliver the projects on time. This delay is causing doubt in the mind of real estate investors and home buyers who have taken a wait and watch approach over the past 12-18 months. Developers are waiting for the sentiment to improve and Home Buyers are waiting for a potential price correction in the market. As of now, both the parties are holding their position waiting for the other to blink. In the given scenario, advice by www.makaan.com to people who are planning to purchase a property in the next 6-12 months will be:
1. Go for a ready to move in property or a property that would be ready for possession in 6-12 months.
2. In case of investment in a new project, opt only for Construction Linked Payment [“CLP”] plan. This will insulate you from potential delays.
3. Try and bargain hard so that you pay zero down payments. Link everything to milestone payments.
4. Rely on projects by listed companies or FDI backed projects as their ability to raise money and execute projects is better as compared to others.
5. Avoid the temptation of schemes like “interest free payment for 12-18 months” and “pay 50% now and balance on possession”.