The Hindu Business Line : Kerala buyers are in wait-and-watch mode

Investment World - Real Estate & Construction
Industry & Economy - Real Estate & Construction
States - Kerala
Kerala buyers are in wait-and-watch mode

Against a backdrop of soaring inflation, rising cost of raw materials and spurt in cost of funds, a slowdown is becoming increasingly visible in the sector.

— Vipin Chandran

Long-term outlook positive.

C.J. Punnathara

The latest round of rate hikes announced by the RBI in its credit policy has come as a big dampener for the Indian real-estate sector. Against the backdrop of soaring inflation, rising cost of raw materials and spurt in cost of funds, a slowdown is becoming increasingly visible in the sector. As interest rates have risen to double-digit levels, the retail investor has begun to defer investment decisions, waiting for the inflation and the interest rate regime to cool off. Fresh demand for housing and real-estate seems to be waning.

“The demand-supply equilibrium in the real-estate sector is likely to be skewed as retail investors begin to defer their investment decisions. Although demand has begun to wane, it has still not affected prices to any significant degree, but several real-estate and housing companies have begun to offer incentives to customers to book their homes and apartments,” Dr V. A. Joseph, Chairman of South Indian Bank, said.

Several housing and real-estate companies have begun to offer freebies for customers who book their villas and flats. Freebies such as trip to Dubai for two from the selected customers who have booked their flats are now common newspaper advertisements. Another company offers a similar trip to Singapore. Some offer monthly Maruti Alto car from among the new bookings. If some of the advertisements are to be believed, interest-free loans are also on offer from some housing firms. As real-estate and housing companies still seem to proliferate, it appears to be a buyer’s market, even as the retail investor is biding his time before entering it.

“As the price rise in the real-estate sector seems to have eased off and interest rates are at their highs, it makes better sense to wait and watch before entering the market. There is a distinct possibility that interest rates are likely to tumble in the coming months. Free foreign trips and cars apart, there is also a distinct possibility of real-estate prices weakening in the months ahead,” Mr Pradeep Kumar, a sales executive, said.

Hard times for speculators

But the good tidings for the retail customer could mean hard times for speculators.

As real-estate prices hardened over the past couple of years, there was lots of money for the making. When new projects were announced, speculators would book apartments by paying the early instalments. One year down the line, the property prices would have gone up and the speculator would sell his investment in the still unfinished property at a handsome profit before venturing out to his next investment.

Mr Sunil Mathew is an NRI from Malaysia who has speculated in the real-estate market and seen his investment soar over 60 per cent in a couple of years. When a new project was announced near an IT Park in Kochi a couple of years ago, he paid his first instalment for the Rs 35-lakh apartment. One year down the line, he was back in the country and sold his bookings in the still-to-be-completed property at a lucrative margin and invested the proceeds in two other just-announced projects. But a faltering real-estate sector could arrest the lucrative cycle of buying and selling.

The speculators are left with unfinished apartments on which they have no long-term interest. As time progresses and additional instalments become due, only speculators with deep pockets would be able to make additional payments. Lack of liquidity would force the average speculator to sell his investments, often at major discounts. And the real-estate prices could tumble.

‘temporary BLIp’

“The demand might have waned marginally in the recent past but we are nowhere at the end of the road as far as housing demand is concerned. The speculators have been getting out of the market and it is the genuine retail investor that is left in the market. And that is a good thing.

“Moreover the rainy season has never been the peak period for the real-estate industry in the country. We expect demand to pick up once again with the festive season in a couple of months’ time from now. By that time the inflationary spiral and interest rate regime are expected to come down from their present highs,” Mr Mohammed Salim, Managing Director of Asset Homes, said.

With specific regard to Kerala and Kochi, he said the present dip in the realty sector is just a temporary blip. With almost 30 per cent of its population working outside the State, the demand for housing is not likely to slow down on a long-term basis. Moreover, the recruitment drive by IT majors such as Infosys and Wipro is yet to commence in a big way in Kerala. When that happens, housing demand will begin to look up once again.