The Real Estate Slump May Not Be Over Yet

6/22/2020 The real estate slump may not be over yet
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The apex court has asked the state-owned NBCC to take over the housing projects
of two real estate giants— Amrapali and Unitech.
The real estate slump may not be over

yet
3 min read . Updated: 05 Aug 2019, 08:22 PM IST
Sneha Alexander
A recovery in the real estate sector, where project stalling rates have
spiked, may be as prolonged as the slowdown without a significant
price correction
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Topics 9,051,535
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Plain Facts Real estate NBCC
Fifty years after bank nationalization, India is today witness to

a unique form of nationalization of real estate, thanks to the
Supreme Court.
To provide relief to homebuyers, the apex court has asked

state-owned National Building Construction Corp. Ltd (NBCC)
to take over the housing projects of two financially troubled
real estate giants Amrapali and Unitech.
The licences of these two real estate groups have been revoked,
with the court holding them responsible for diversion of funds
and for not delivering projects on time after receiving money
from homebuyers.
The court’s orders may have come as a punishing blow for the
developers but it is not clear whether homebuyers can cheer
yet, given that NBCC’s ability to deliver such projects on time
remain untested.
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The broader crisis in the real estate sector also does not appear
to be over yet, suggests an analysis of the available data on the
sector.
The roots of the crisis can be traced to the real estate bubble in
the years leading up to the global financial crash of 2008. The
crash led to a global credit freeze and real estate projects across
the world were gutted as lenders did their best to avoid this
sector.
India was no exception to this trend though credit flow to the COVID-19
sector did not dry up as dramatically as in the West. However, WORLD

INDIA
at least the speculative capital in the sector was no longer 9,051,535

425,282
forthcoming as expectations of investors about the returns

from the sector got revised.
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Unsurprisingly, project launches in the sector have been

declining steadily since the peak of 2007, according to data
from the project-tracking database of the Centre for Monitoring
Indian Economy, or CMIE).
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New projects in the real estate sector have been

declining since 2007
Value of projects (in Rs billion)
2,500
2,000
1,500
1,000
500 Residential
Commercial
0
1995-96 1999-00 2003-04 2007-08 2011-12 2015-16
Source: CMIE Capex • Get the data • Created with Datawrapper
As fund flows dried up, project stalling rates spiked. The

stalling rate for commercial estate projects accelerated since
2012 as the economy slowed and demand for office spaces
declined.
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Stalling rates have been soaring in commercial real

estate
Value of stalled projects as a proportion of total projects under implementation (In
%)
Stalling rates in Commercial

commercial real
20
estate surpassed
that of residential
real estate in 2012
and has been
15 rising since
10
5 Residential
0
2005 2010 2015
Source: CMIE Capex • Get the data • Created with Datawrapper
Construction of commercial real estate, which is mainly for

leasing, is funded primarily through own equity and external
debt.
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Unlike the residential sector, these projects do not have WORLD

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customer advances as a source to fund and complete the 9,051,535

425,282
projects, said Shashank Jain, partner, deals, at

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Private equity firms, which were earlier betting on real estate

developers to take a lead in development, have also turned
cautious, he said.
The shock of demonetization, followed by two new regulatory

changes, the goods and services tax (GST) and the Real Estate
(Regulation and Development) Act, only served to bring in
more uncertainty and ensured that the slump in the sector
continued.
As bank credit to the sector slowed and bank deposits soared COVID-19
post demonetization, banks outsourced lending to non-banking

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financial companies (NBFCs), which in turn stepped in to fund 9,051,535

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real estate developers. However, the NBFC crisis last year

squeezed that channel of finance as well.
Bank lending has picked up since then, especially in residential

real estate, but lending to commercial real estate is still
showing tepid growth.
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After a prolonged slowdown, bank lending to real

estate rose last year
YoY growth (in%)
60
50
40
30
20
Residential
New
10
Explore e-paper
Commercial
Unsurprisingly, the lack of funds continues to be one of the

major reasons behind stalled projects even today. The two big
Home
reasons cited by investors for stalled projects is the delay in
Latest land acquisition and lack of funds.
Trending
My Reads
Pivot Or Perish COVID-19
Market Dashboard WORLD

INDIA
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The Future Of
Covid Tracker
Land acquisition and lack of funds are the major
Lounge reasons for stalling in real estate
Coronavirus Proportion of stalled projects (in%) in quarter ended in June 2019
47.9
India2Global Emerging
Tech Conclave 40 25.6
14.0
20 4.5 3.8 2.3 1.9 0.0
Close
quisition problem
Others*
Lack of funds
promoter interest
ck of environment
clearance
f clearances (non-
environmental)
favourable market
conditions
uel/feedstock/raw
al supply problem
The lack of funds has also forced developers to enter barter
deals with smaller contractors to take over parts of their
projects, in a desperate bid to exit those projects.
“It’s a challenging situation," said Jain. “Every stakeholder

should be prepared to take a hit or make compromises.
Banks and financial institutions have to take a haircut in the

loans given, developers and owners have to forgo profit/ surplus
cash flows, and even homebuyers should be prepared to pay
more, if required, for the completion of projects."
Ultimately, a lot rides on where house prices head. Despite the

slump in the sector, most localities haven’t seen much of a
correction in house prices.
Since scal 2014, house prices have fallen in Delhi

but have risen in Mumbai and its suburbs
CAGR (in %) between scals 2014 and 2019
7.3
6.6
6.1
5.3
5 4.2
2.1
Gurugram
Delhi
0.2
Kalyan Dombivali
Thane
Mira Bhayandar
Navi Mumbai
Noida
Ghaziabad
Mumbai
-1.8 -1.9
Data for scal 2019 include only rst 3 quarters

Source: NHB residex • Get the data • Created with Datawrapper
In Delhi and Gurugram, there have been mild corrections but

not in Mumbai or any of its suburbs between fiscal 2014 and
fiscal 2019 (up to December 2018), according to data from the
National Housing Bank Residex.
A significant correction can pave the ground for a V-shaped

recovery in the sector. In the absence of that, the recovery in
real estate is likely to be as prolonged as the slowdown.
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6/22/2020 The real estate slump may not be over yet

2 BHK & 3 BHK Flats - Ace Parkway,

Exclusive Lockdown Offer. Pay 15% now & 85% on offer of

acegroupindia.com/Ace+... Visit Site

The real estate slump may not be over

Plain Facts Real estate NBCC

Fifty years after bank nationalization, India is today witness to

To provide relief to homebuyers, the apex court has asked

sector did not dry up as dramatically as in the West. However, WORLD

at least the speculative capital in the sector was no longer 9,051,535

forthcoming as expectations of investors about the returns

2 BHK & 3 BHK Flats

Unsurprisingly, project launches in the sector have been

New projects in the real estate sector have been

Source: CMIE Capex • Get the data • Created with Datawrapper

As fund ﬂows dried up, project stalling rates spiked. The

2 BHK & 3 BHK Flats

Stalling rates have been soaring in commercial real

Stalling rates in Commercial

Source: CMIE Capex • Get the data • Created with Datawrapper

Construction of commercial real estate, which is mainly for

Unlike the residential sector, these projects do not have WORLD

customer advances as a source to fund and complete the 9,051,535

projects, said Shashank Jain, partner, deals, at

22 seat premium of ce space - AT

MLS-INDIA.IN VISIT SITE

Private equity ﬁrms, which were earlier betting on real estate

The shock of demonetization, followed by two new regulatory

post demonetization, banks outsourced lending to non-banking

ﬁnancial companies (NBFCs), which in turn stepped in to fund 9,051,535

real estate developers. However, the NBFC crisis last year

Bank lending has picked up since then, especially in residential

After a prolonged slowdown, bank lending to real

Unsurprisingly, the lack of funds continues to be one of the

Pivot Or Perish COVID-19

Market Dashboard WORLD

“It’s a challenging situation," said Jain. “Every stakeholder

Banks and ﬁnancial institutions have to take a haircut in the

Ultimately, a lot rides on where house prices head. Despite the

Since scal 2014, house prices have fallen in Delhi

Data for scal 2019 include only rst 3 quarters

In Delhi and Gurugram, there have been mild corrections but

A signiﬁcant correction can pave the ground for a V-shaped

Subscribe to Enter email address Subscribe

Click here to read the Mint ePaper

Livemint.com is now on Telegram. Join Livemint channel in

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