According to industry estimates, around Rs 8,000 crore of real estate projects covering over 40 million square feet are facing delays. Delays have been caused because of various reasons : tardy government approvals, stop-work notices from the municipality, construction delays, labour unavailability and so on.
Construction costs for large commercial projects is Rs 2,000 per square feet which been growing by over 20% every year, and the developers are carrying a compounded interest burden of 30 to 40 per cent after three years.
The cost of construction has almost doubled in the last 3-4 years given the steep increase in the price of input and construction costs and an increase in interest rates. Steel and cement prices which form the main components of construction costs besides labour, have risen by over 50% since Dec 2005.
By 2008-end, Mumbai and its suburbs will add 15.4 million square feet of office space, which analysts say will have a sobering impact on property prices. Office rentals in Mumbai’s central business district such as Nariman Point have increased 50 per cent in the last three years and places such as Worli and Lower Parel saw a 30 to 40 per cent increase in this period.
Most of the delays are because of government approvals. In Mumbai, over 56 approvals need to be taken from environment and forest department, pollution control board and others. This approval stage takes over a year to complete delaying the whole process.
With lack of funding from banks, PE investors and cash in hand, developers are now rushing to moneylenders to borrow money for completion of their projects. Moneylenders provide loans @ 20-40% which makes completion of the project even more expensive.
As predicted in one of the earlier posts, RBI has again increased the CRR and repo rate, making life more difficult for the developers. Real estate stocks are taking a beating in the stock market with each day. DLF is already trading below their IPO price.
Subscribe to:
Post Comments (Atom)
Posts
1 comment:
The recent fate of real estate stocks on the bourses mirrored the first signs of trouble ahead for the industry. Fuel price hike and lower IIP (Index of Industrial Production) numbers were recent setbacks to the sector and now with a 11.05% growth in WPI (wholesale price index), inflation has emerged as a serious threat to the sector, which has been cooling off in recent times.Market experts predict further softening of prices. "Even though prices have corrected by 10-20% and even beyond in some regions, it has not yet touched the bottom. It is advisable to wait till at least the year-end to buy homes," says Jai Mavani, real estate practice head, KPMG.However, since many developers are holding onto prices and even operating as a cartel in some prime pockets like Mumbai, postponing purchase decisions may not really be a solution. Despite the fact that volumes have fallen sharply, established developers are clearly unwilling to drop prices. According to Kotak Institutional Equities' research report, home prices in Mumbai market continue to rise since last October.For more view- realtydigest.blogspot.com
Post a Comment