The Hindu Business Line : Inflation, the latest worry

Rising inflation and the impending possible hike in interest rates by banks as an antidote are the disturbing realities haunting the realty sector of late. And that at a time when the rupee is showing signs of softening, kindling promoters’ hopes of a pick-up in NRI investments.

For one, the spiralling inflation will further increase the prices of construction materials and prompt the labour to pitch for higher wages, which will result in a squeeze on the margins of the industry at the prevailing selling rates for built-up space. On the other side, an increase in lending rates by the banks will keep a chunk of the middle-class investors away at least for a while.

According to Mr S. N. Raghuchandran Nair, President of the Thiruvananthapuram chapter of Confederation of Real Estate Developers’ Association of India (CREDAI), the situation now obtaining will delay the sale of apartments and flats as also the launch of new projects till the investors come to terms with it.

But, on the impact of the rise in interest rates, some of the promoters are optimistic that the immediate negative sentiment will soon give way to renewed interest in investments.

The rates were 11-12 per cent a couple of years ago, which have subsequently come down to 9-10 per cent and any increase in the rates now may at best restore them to the earlier levels, feels Mr K.V. Rajagopal, General Manager and Treasurer of CREDAI, Thiruvananthapuram.

‘Self-contained’ townships

Coming to the development scenario, an emerging trend in Thiruvananthapuram is the setting up of small ‘self-contained’ townships on the outskirts of the city where land prices are comparatively lower.

Mr Rajagopal notes that this will ease the congestion within the city limits and the Government can play the role of a facilitator to provide power and water in these townships and meet other requirements, such as waste processing plants.

Apart from the residential properties, the commercial segment of the real-estate sector in Thiruvananthapuram is set to get a boost in the near future.

The main roads in the city, now bordered by rows of small shops housed in age-old buildings, are being given a facelift with work in progress to convert them into wide four-lane corridors.

Though there has been a slowdown in the activities in recent months, the project is expected to be completed soon. This will pave the way for modern commercial complexes coming up in place of the old structures.

Fixing fair value of land

Meanwhile, the volatile land prices in Kerala are expected to settle with the State Government putting together a draft document for fixing the ‘fair value’ of land across the State. The draft, which is currently in circulation for eliciting the opinion of the various stakeholders, is expected to be notified soon.

The fair value regime, once in force, will keep a check on the runaway prices of land in the State as also ensure the transparency of land deals.

It will also rein in the free play of speculators and money launderers in the field, which is considered a key reason for high land prices in the State.

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