Recently, the head of a company with a significant presence in real-estate and infrastructure development declined to talk about his company’s plans in real-estate but was enthusiastic about sharing information relating to infrastructure development — a sign of the times.

His reason, apart from his primary focus of operations being infrastructure, was the worry that it was the wrong time for the company’s name to be associated with real-estate. He feared that it would have an adverse impact on his plans to raise funds for infrastructure projects as real-estate companies are not the flavour of the season among investors.

This reflects the sentiment among real-estate developers and construction companies. Real-estate developers are facing a severe funds crunch in executing projects because of the tightening liquidity condition and are resigned to being in the doldrums in the coming months. Diversified construction companies are banking on their industrial and infrastructure projects to shore up revenues with real-estate development projects lower on their list of priorities.

Some of the large players put on a brave face and talk about their brands having the reputation and the strength to sustain demand and see them through the tough times ahead. But project financing is tight even for big players with foreign funds, restricted to acquiring lands and for building up a land bank.

What cannot be denied is that fund flow in project finance for most developers has dried up.

Banks, which have always been keeping developers at a distance, are now even more cautious; private equity funds are now playing hard-to-get. Just a few months ago private equity funds were chasing projects, now it is the other way around.

This is a far cry from the optimism and buoyancy just about a year ago in the sector when builders were pegging prices of residential units high and blaming land prices and commodity prices. Prices of residential units across cities hit levels that made housing an unaffordable option for most wage earners. They not only priced themselves out of the market but were hit as inflation, high interest rates and the financial crisis in the international markets hit them in a series.

So, where has this left the buyer looking to own a house?

Today, every developer, from the largest players with a national presence to the regional player, is talking about focussing on the ‘affordable’ segment. This segment, loosely pegged at about Rs 25 lakh an apartment in most major metros, is what the builders are targeting. But these are primarily at the announcement stage and the projects are only on paper. Actual supplies could take anywhere between two and three years to happen, given the track record of time involved in paperwork for project approvals and the delivery time.

The general sentiment among the developers is that at least for the rest of the year someone planning to buy a house is not likely to take a final decision. High interest rates on home loans, uncertainty in the markets and expectations of a drop in prices are likely to contribute to buyers putting off plans. Buyers are likely to shop around in the coming weeks and possibly leave purchases to sometime in 2009.

Next year is likely to see developers cutting down on prices and hard selling their projects to generate liquidity and defray stocks. Hopefully, with inflation expected to taper off by then, interest rates would also come down and support demand.

Feedback to blproperty@thehindu.co.in

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