Witness the Revival of Real Estate over the Coming Months
By Ubaid Parkar
Reserve Bank of India
The Reserve Bank of India’s (RBI) bulletin for the monetary policy 2009-10 for the month of August may suggest that the worse may have been over. The document is laced with affiliations with the recession and the sub-prime crisis when it comes to housing finance and the real estate sector. But data proves that although the status of most sectors in growth and Gross Domestic Product (GDP) are nowhere near what was achieved in 2007, there has been considerable stabilization of these indicators since May.
The construction sector was affected by moderation in residential and commercial real estate demand against the backdrop of slowdown in overall economic activity. Growth in real estate suffered due to the financial turmoil and subdued construction activities.
As per the RBI’s disaggregated data drawn from 49 banks accounting for 95 per cent of total bank credit, the year-on-year growth in bank credit as of May 2009 was lower than that in the previous year. The credit flow to real estate though sustained itself; it was significantly lower in housing.
The annual sectoral flow of credit to the real estate sector nearly doubled over the previous year. This constitutes 8.4 per cent of the total flow of credit in various sectors. Conversely though, the sectoral flow of credit for housing declined by
more than fifty per cent over last year. This explains the rise in supply and decrease in demand for the first half of 2009.
When dealing with the growth rates of real (GDP) the Financing, Insurance, Real Estate and Business Services there was an overall decline by almost twenty five per cent from the first quarter of 2007-08. The construction sector growth rate over the same period was even worse with a decline of almost thirty eight per cent.
Circumstances though are looking up for the current year and are understandably slow, almost resilient. Growth in the cement and overall infrastructure saw a rise over the previous year. Growth in the cement industry alone more than doubled over the
previous year.
The market optimism
Developers, builders and brokers alike are banking on the cyclical fluctuations of historical instances wherein previous drops in the sector were followed by the expected rebirth of the system. India, through the global recession was cautious and it never bore signs of a real financial crunch; just the overwhelming inclination to reduce investments and cut costs. All in the name of the recession. Atul Goel, Managing Director of the Goel Ganga Group said, “Let me tell you that recession was never there in India. We had just slowed down for some time as a precaution against changes in the international market scenario…it is just that there is a sentimental change that affects our market.”
With sales catching up as witnessed over the last month or so and incomplete projects banking on the expected revival of not just the real estate sector but also the economy as a whole, developers can now wash off their hands from the older or existing projects and can look forward to financing for new projects. Supply can and will create new demand as housing always has been a basic need.
With sentiments far from subdued by the pandemic of swine flu, and with the festive season from Ganesh Chaturthi to the onset of Diwali lingering a potential upswing for an evangelistic resurgence, the system of production, distribution and consumption can spin the cycle again.
