‘The current slump in demand is temporary’

R K Mittal,CMD,CHD Developers believes that the overall scenario in the real estate sector is moving towards favourable times and demands will soon start to pick up....

Published:February 28, 2009 2:11 am

R K Mittal,CMD,CHD Developers believes that the overall scenario in the real estate sector is moving towards favourable times and demands will soon start to pick up. CHD Developers,a public limited company listed on the Bombay Stock Exchange (BSE) since 1995,is developing several projects across the country.

Excerpts from a conversation with Praveen K Singh:

As a developer,what solutions you put forward to revive the industry against the downturn effect?

The real estate developers should focus on providing quality and affordable housing options suited to average Indian family whose disposable income is steadily on rise. Efforts must be made to provide them with quality housing options that suit their budget. The developers should now focus on offering more value to their customers and concentrate on profits through volumes instead of high-margins. This will ensure enough liquidity and rapid movement of their properties.

We believe that the current slump in demand is temporary. Downturns in markets are cyclic in nature and every downward phase is followed by an upward one. Our market understanding tells us that there are extremely promising times ahead,particularly in tier-II and tier-III cities in India. Once things stabilise at the global front and there is enough liquidity for Indian banks to bring the interest rates further down,the demand for quality residential and commercial properties will once again shoot up.

Do you think that the realty companies need to further bring down the prices to boost the sales of the unsold flats on which they are sitting?

If it’s feasible,then definitely they should. This will vary from developer to developer and project to project. Supporting the government’s initiatives to provide a boost to Indian real estate sector,many real estate developers have also taken the initiative by lowering the prices of their properties by up to 10-15 per cent and may also look at an additional 5-10 per cent cut if the government’s support is strengthened. As such,buyers will have no more reason to wait. The overall scenario is now very favourable for the real estate industry and we expect the demand to start picking up pace,helping all real estate developers to sell a lot more in the forthcoming couple of months than they did over the past two quarters.

With banks bringing down the interest rates as low as 8 per cent,do you think that this will boost the market?

Consumers had been waiting for lower interest rates for past several months. Majority of buyers had been in a wait and watch mode as they expected the interest rates and the prices of real estate properties to fall down and therefore,they deferred their buying decision. The latest SBI initiative will definitely help them make the buying decision as the interest rate is almost at the same level as it was around three years ago. The SBI’s move will not only help in spurring the demand in the real estate sector but also will force the private banks to lower their rates,thus,strengthening the demand even further and have a stabilising effect on the overall economy. However,there still exists some possibility for it to be lowered further and the government and RBI will need to look into it at the earliest so as to further boost the confidence of the buyers.

When do you think things will

settle down?

Ignoring the requirements of the middle class and the lower income segments has proved costly for many of the real estate developers in India as they have had to face serious liquidity crunch. We sincerely believe that the sector will rebound in near future because the demand for affordable and quality residential units is steadily on the rise. I see the next wave of realty boom heralded by the tier-II and tier-III class cities.

What according to you are the critical issues in front of the industry and how government should act?

Till recently,the market was burdened with speculative investors who were buying properties and selling them within a year as the prices were continuously moving upwards. Also there were unbridled expectations from the luxury properties segment,which were available at astronomically high prices. As such,the recent upheaval in the realty sector was well anticipated considering the global economic scenario,rising inflation and interest rates from Indian banks. Today,these speculators have exited the market and only genuine end-users are the prospective customers. This has slowed down the demand but is also good for stabilising the prices of properties,which saw unrealistic heights till early 2008.

The government should also work on creating a conducive environment for refinancing projects and enabling the secondary market to finance the assets. l

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