Affordable housing next focus for developers: Ficci

December 21st, 2008 - 3:48 pm ICT by IANS  

New Delhi, Dec 21 (IANS) The slowdown in property market will see developers focusing more on mid-range and affordable housing with a considerable correction in prices of existing residential projects, says a recent survey by an industry lobby.The Federation of Indian Chamber of Commerce and Industries’ (Ficci) survey on ‘Impact of Global Financial Crisis on Indian Real Estate Market’ says while scarcity of funds has affected the supply side, high interest rates have led to demand dwindling.

“The corporates are postponing their expansion plans as they are expecting the prices to fall further. There is time and cost overrun in the existing projects, while new projects are being deferred. This would eventually lead to a reduction in price in the coming four quarters and the market is expected to turn in favour of the end user,” the survey report says.

The survey says developers also seem to have finally realised the need for affordable and mid-range housing with emphasis on the quality of product to survive the current slowdown, as there is a dearth of low-cost affordable units that will be the main focus of investors.

“Due to higher risks of investing in real estate, the real estate sector will witness lower PE (private equity) deals in the next 12 months, as funds will not be easily accessible, valuations are expected to go down further and the costs are going to be very high for developers,” the survey says.

“PE funds will put forward their own terms and conditions like guarantees and assured rates of return. In view of higher risks due to adverse market conditions and the ongoing financial crisis, investors expect internal rate of return (IRR) of above 25 percent from Indian real estate projects,” it says.

To fight the impact of slowdown, Ficci has proposed an eight-point agenda to boost the realty sector and help the foreign direct investment in this sector.

The Ficci agenda includes policy changes like availability of adequate and cheap long-term finance, simpler legal framework, single-window clearance, land reforms, incentives for housing projects, check on speculation in land prices and stricter laws for defaulting developers to boost confidence of consumers.

Home loans under this scheme should be offered till March 2010 and not till June 30, 2009 to encourage buyers to return to the market.

Private sector banks should also follow suit by cutting down interest rates on home loans significantly to benefit both existing and potential home loan customers.

Ficci is of the view that as the right climate for a revival of real estate sector has set in now, banks should consider lending funds to developers selectively so that existing and new projects do not face significant delays.

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