As more and more residential properties remain unsold, companies and PE players may have to rethink strategy.
Rahul Patil, 36, a marketing executive with a big media group in Mumbai, changed his mind about buying a house at Mira Road – on the city’s outskirts – at the last minute. The reason was two-fold: first, a general apprehension of forthcoming retrenchments across corporate India – if it happened to Patil, he would find it impossible to repay his housing loan. But more importantly, he knew he would lose nothing by delaying. “I don’t know if real estate prices will fall in the near future, but they sure won’t rise any time soon,” he says.
It is a sentiment widely held in the residential real estate market. “Between 2009 and 2013, real estate prices were escalating every month and the developer was king,” says Sharad Mittal, Director and Head, Motilal Oswal Real Estate Fund. “Property prices became unaffordable for most people. Prices remain the same today, and it is my sense that in micro markets like Lower Parel in Mumbai, they will stay the same for the next three to four years. This has led to serious trust deficit and affordability issues for the industry.”
Most important is the problem of cash flow. “The slow pace of sales over the last 24 months is causing cash flow mismatches for developers,” says Vikas Chimakurthy, Senior Executive Director, Kotak Realty Fund. Caught in a pincer are private equity (PE) players who have invested in residential real estate. With inventories remaining piled up, they are forced to stay invested – exits, with decent returns, are extremely difficult. Chimakurthy believes that more than half the estimated $3 billion PE debt investment in residential real estate is unable to get refinanced. “These non-refinanced developers have to either bring in more equity and reduce some portion of their debt, or reduce prices of properties to increase the pace of sales to service existing debt obligations,” he adds.
This story is from the May 07, 2017 edition of Business Today.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
Already a subscriber ? Sign In
This story is from the May 07, 2017 edition of Business Today.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
Already a subscriber? Sign In
Picking Up The Paytm Pieces
Paytm Founder Vijay Shekhar Sharma Is Back In The Trenches After Rbi's Recent Action Left Him Without A Banking Platform. There Are Still Some Opportunities, But He Will Have To Move Swiftly To Grab Them
PMS Vs MF The Big Fight
How do mutual funds and portfolio management services match up? Know the score on structure, rules, entry fees, charges, and tax perks to pick the right path for your financial journey
Four Levers Of Enterprise AI Strategy
Wide-scale private sector AI deployment and new AI-based business opportunities and ecosystems can truly supercharge the Indian economy
"Don't let a unique chance slip by"
JEFF MAGGIONCALDA | CHIEF EXECUTIVE OFFICER | COURSERA
THE INCOMING DISRUPTION
The disruption in the industrial sector is still unknown, but inevitable. Companies need to wake up
THE WHEEL WHISPERER
For Manan Shah, Managing Director of MICL Group, luxury cars are not about showcasing one's wealth or status. It is about personal well-being
TRIPPING WITH TECH
A road trip is an adventure like no other. While you take in the experience, get some peace of mind with these nifty gadgets
Transforming Spaces
WHETHER YOU WANT TO REDECORATE YOUR BEDROOM OR HALLWAY, A GORGEOUS WALLPAPER ADDS FLAIR TO YOUR HOME AND ALLOWS YOU TO STAMP YOUR STYLE IN YOUR NEW ABODE
ALPHATALE
MONEY MANAGERS TO THE AFFLUENT DELIVERED ROBUST RETURNS TO INVESTORS IN THE PAST YEAR, THANKS TO THE BUOYANCY IN THE MARKETS. BUSINESS TODAY DECODES THEIR STRATEGY
"THE ALTERNATIVES SPACE CAN GROW 3X IN FIVE YEARS"
Vikaas M. Sachdeva, MD of Sundaram Alternates, talks about where India's alternative investment industry is headed