5 factors that influenced Indian Real Estate Sector in 2011

Posted on January 31, 2012

There are many factors contributing to the growth of a sector. 2011 can best be described as a lackluster year for Indian real estate sector. There were many factors that can hinder the growth in 2011 out of which top 5 are highlighted here

1. Lack of liquidity with developers: The liquidity position with most Indian developers was extremely tight. This prevented them from launching new projects and focus for the better part of 2011 was to complete the existing commitment. This also forced many developers to launch plotted areas (which require low capital investment while offering decent short term revenue). As per rough estimate Indian realty sector has a debt burden of approximately 120,000 crores.

2. High property prices: The high property prices keep buyers on the sidelines for better part of 2011. Soaring property price can be because of various reasons including high inflation rates, high raw material cost of cement & steel, high labor cost, high land cost and speculation.

3. High home loan interest rates: In an effort to curtail inflation, RBI kept increasing the benchmark rates thirteen consecutive times which lead to hardening of home loan rates. This restricts the home buyers to adopt a wait and watch approach.

4. Delayed projects: Increasing number of delayed projects makes the home buyers opt for ready to move in accommodation rather than putting their money in new launches.

5. Political stability: Political stability is a boon for the development of any sector including real estate. A sound and stable government can help sectors grow and compliment each other for the development of the state. 2011 saw polls in key states like West Bengal and Tamilnadu and it was fortunate that the people returned a stable government in both the states.