The upcoming general elections in 2019 will accentuate the real estate sector’s liquidity crisis as funds parked by political parties will be sucked out to finance poll campaigns. Developers, already struggling due to the limited NBFC lending, may be forced to liquidate inventory at lower prices to generate the much-needed money.
“During elections, there is a liquidity crunch because political money involved in real estate is taken out of the system. Most of the time, it leads to a cash-starved situation for builders and it is a historical reality,” Pankaj Kapoor, MD and founder at Liases Foras, told Business Line .
“The biggest problem is that to return money, builders need to borrow from some other source, and it is easy in the current scenario where funding is already constrained,” he added.
Housing prices to soften
With financing issues, project completion becomes slower. “Builders may give discounts and it is a good period for buyers to strike deals.”
Surendra Hiranandani, founder and Director, House of Hiranandani, said that historically, real estate prices have remained soft ahead of the elections, but have regained momentum afterwards. “Apart from elections, credit growth and improvements in infrastructure will set the tone for economic growth in the future.”
Anuj Puri, Chairman, Anarock Property Consultants said that the general elections will play a pivotal role in deciding the fate of Indian real estate in the coming year. “Prior to elections, many prospective home buyers adopt a wait-and-watch approach because a new government may announce new schemes and policies, which may impact the attractiveness of real estate investments. For this reason, the current time is decidedly favourable for home buyers as they can do some hard bargaining,” he said.
Developers generally refrain from launching new projects until the general elections results are in. This is due to the uncertainties that developers may face related to the timeliness of regulatory approvals for projects.
“While the polls might not substantially impact property prices, they could slow down policy clearances and infrastructure projects critical to real estate,” said Hiranandani.
Puri pointed out that the spate of industry-shaking policies that followed the last elections led to a decline in the launch and sale numbers year on year. “Each new policy announced by the incumbent government brought its own kind of disruption to real estate, and the sector has not yet recovered completely from the ensuing confusion,” he added.