Financing cost

Part 10

CONFERENCE ON REAL ESTATE

Financing cost

It is also on the rise for developers. As the number of defaulters increase, commercial banks have become more restrictive in lending money to the developers.

Developers have to rely on borrowing from alternate sources at high rate of interests which again pushes up property prices. All this results in prices going above the buyer’s range, making it difficult for the units to get sold.

Demand dependent on many factors

A challenge that the real estate developers face is generating the requisite demand for the properties constructed. The factors that influence a customer’s choice in property is not restricted to quality alone, but is dependent on a number of other external factors including proximity to urban areas, amenities such as schools, roads, water supply which are often beyond the developer’s sphere of reach.

Also, demand for housing units is also influenced by policy decisions relating to housing incentives.

Input cost

It has been rising steeply due to inflation. Real estate is a capital and labour intensive industry and rise in cost of construction materials as well as in labour makes it harder for realty developers to reduce prices of the unsold units. Cost of cement has gone up by as high as 50% in few states and cost of steel per tonne has gone up to Rs 52,000 from Rs 40,000 per tonne. Labour prices have risen by 40%-50% during the same period.

Input cost

The absorption rates in realty hubs like Delhi NCR and Mumbai have come down by about 30% and Mumbai alone has to bear the burden of around 80,000 unsold units .Launches have plummeted by 50% in most of the cities as well. There is a need to look beyond the IT/ITeS industry when it comes to commercial office space. Any upset in the IT sector would inevitably have a huge impact on absorption of office spaces in cities like Bangalore, NOIDA and Gurgaon.

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