Real estate developers are feeling the liquidity crunch -- the sources of funds are drying up even as they get squeezed from both sides: high interest rates and property prices have hurt offtake while rising steel, cement prices have pushed up input costs 20-25 per cent, which developers have to absorb for now.
''The crunch is getting severe. It's not apparent, but will become more apparent in the next six months. Land prices are likely to fall in the next 3-6 months,'' said Chanakya Chakravarti, MD (real estate business), Actis Advisers, a PE firm.
Land prices have been the key instigator and catalyst for real estate prices going through the roof. Real estate observers, analysts and agents say there's enough evidence to suggest that developers are feeling the crunch.
The evidence: Thanks to the demand slow down, actual transactions have dried up. In some cases, where developers have higher sales, the cash flows are not there as the receivables are high, points out the CEO of a real estate fund.
Developers are cutting price tags. DLF recently sold projects in Chennai and Manesar in Haryana at Rs 2250 per sq ft, which were sold in a space of 3-4 days. This underscores the point that there's a market if prices are affordable.
Developers are disguising price discounts with various incentives like free parking or free registration to reduce the overall cost of acquisition for buyers.
Construction cost has gone up by 20-25 per cent with the spike in prices of steel, cement and other material.
''The cost of steel today might be more than the land cost for a 1000-sq ft flat. While the market was able to absorb the increase in land prices, it may not be able to absorb the increase in the cost of inputs,'' said Arun Agarwal of Reliance [Get Quote] Estates, a Delhi-based real estate broker.
Developers, especially mid-tier and local players, are trying to rope in private equity players.
Wednesday, May 14, 2008
Subscribe to:
Posts (Atom)