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A sudden burst of job losses could trigger a correction in the property markets

A sudden burst of job losses could trigger a correction in the property markets

A sudden burst of job losses could trigger a correction in the property markets

A sudden burst of job losses could trigger a correction in the property prices across India, feels Lalit Kumar Jain – President, CREDAI (Confederation of Real Estate Developers' Association of India). Poor performance of businesses in the information technology (IT) and manufacturing space could upset the real estate applecart. If the job market gets affected then there is a cause for concern. If job losses happen in the information technology (IT) sector then all the top seven cities, which are the key property markets, will get affected. If the manufacturing industry slows down, then the property markets in tier-II and tier-Ill cities will bear the consequences. However, the Indian economy is more robust than most would speculate it to be. The odds of such a situation arising are less unless there are some disastrous market conditions sweeping the globe.

However, for as long as such a job crisis or a sudden fallback happens a correction in the real estate prices in the near future is highly unlikely. The construction cost for real estate developers have gone up by 40% in the last one year. Moreover, land is not coming cheap, unless one has a historical land bank. So, there is hardly any scope for reduction in prices.

So, depending on certain micro-market conditions, the real estate sale price will come down if developers start becoming desperate. There have been signs of concern in that regard as well. On one side, there is a robust demand for housing, but on the other, the global markets are playing a dampener. The sentiments among developers are already down since the last 6-8 months. However, there is stiII no clear-cut scenario emerging as to how the markets will evolve in the coming months. The country's biggest realtor, DLF, saw almost Rs 1,000 crore increase in its debt during the July-September quarter while Mumbai-based realtor HDIL has incurred a debt of Rs4,000 crore as of September end. Apart from rising borrowing costs and shrinking access to credit, the rising debt of real-estate companies is a cause for worry for the sector. Even private funding is never cheap. It has now become costlier. Banks are currently lending at a rate of 14% and private funding is about 8% more than the lending rates offered by banks. Private equity firms are looking at 30% returns for their investments.

Last Updated: Wed Dec 14 2011

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