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IMPACT OF RECESSION ON REAL ESTATE IN INDIA

Presented By:
Yogin Vora

The Indian Real Estate Market: Contribution to the Economy

Contribution to GDP of about 7% Second largest employment generator in the country Real estate growth gives boost to steel and cement sectors Real estate is a growth engine for development of over 269 allied industries

Major Growth Driver:

Residential Segment: Increase in Income level combined with trends of higher urbanisation and nuclear families. Backed by easier availability of housing loan Commercial Segment: India emerging as global back office for services like IT & IT based business, multinational companies , SEZs. Retail & Entertainment Segment: Given growing disposable income & emergence of organised retail, entertainment destinations.

MORE CATASTOPHIC THAN THE AMERICAN BANKING MELTDOWN

American Banking Collapse is more miniscule 1000 times bigger than the mortgage bubble RBI examined books of 10 realtors to verify solvency and assess risk of possible defaults on loans and deposits Companies Identified DLF,Indiabulls,Unitech,HDIL,Mahindra Lifespace, Ansal Properties, Phoenix Mills,Akruti Citi,Phoenix Mills,Peninsular Land

Effects of Meltdown on economy

Fall in stock markets

Increase in interest rates

Slowdown in IT industry Unemployment Inflation Retail & tourism has also suffered As a result real estate space witnessed pressure from demand side and become very difficult to sell

projects.

Impact on Real Estate sector

Increase in prices of inputs due to inflation effecting all areas of economy like cement, steel, etc. Increase in home loan interest rates resulting into

additional EMI burden on the borrowers.

Reduction in salaries and layoffs resulting into reduced demand for Real estate Demand-supply imbalance Forced correction in prices

Impact on Real Estate sector (contd.)

Reduction in Commercial Rentals
Projects stagnancy

Slow down in infrastructure projects

Difficulties to raise fund (Failure of Emaar IPO)

Loss of Jobs
Shortage of skill workers

Price Reduction in Major cities

Metro cities % change in High End Area Mumbai 12% Delhi 5% Banglore 10% Kolkota
Pune

% of change in Low end area 20% 15% 17% 12%

21%

5%
18%

Price Reductions
Overall price cuts of 10-12% In Banglore, DLF group reduced prices by 25% In Thane, Lodha group cut prices by 30% In Mumbai(Lower Parel) Orbit group cut prices by 20%

EFFECT ON FINANCIALS JUNE09

Overall 76 % dip in profits & 57 % fall in sales in First Quarter of FY 09-10 over First Quarter of FY 08-09 DLF - 79 % decline in profits & 57 % slide in sales Unitech 63 % decline in profits & 50 % slide in sales Parsvanath, India bulls, HDIL, Akruti, Shobha, Purvankara have reported decline in profits upto 95 %.

Measures
Reduction of interest rates. RBI policy for restructuring loans. Reduction in excise duty on construction material like cement. Encourage property development in Tier II and Tier III cities

Measures

(Contd)

Under the Interest Subvention Scheme Loan upto Rs. 10 Lakh, & property value is not above Rs. 20 Lakh will get 1% lower interest. Corporate like Tatas introduced Nano Housing for Rs. 3.9 Lakhs- Rs. 6.7 Lakh called as Shubh Griha project. SBI introduced 8 % housing loan scheme for one year followed by the other PSU & Private Sector Bank as well.

Tips to Individual Investors:

Determine a budget

Deal with reputed builders

Opt for developed properties

Check out the rates of next best options

Go for fixed interest rate loans

Dont bite freebies bait

Question to the Audience

Meltdown in Real Estate a Boon or a Bane ?

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THANK YOU

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