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Real estate's perpetual problems - Views on News from Equitymaster
 
 
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  • May 12, 2009

    Real estate's perpetual problems

    Woes of property developers continue
    While there seems to be some signs of a revival in the economy, property developers are still struggling to stay afloat as high debt levels and lack of private equity funding means that a sustained recovery in the property market is not likely to happen anytime soon. While the interest for buying properties is palpable, the same is not getting converted to sales as there are expectations of more price reductions on the anvil. Foreign investors, especially, are treading with caution, given that they have been badly scalded in this economic meltdown. Suddenly, problems inherent in the Indian property market such as red-tape, land disputes and unclear titles, which were swept under the carpet in the heady days of 2006 and 2007, have now been relentlessly exposed prompting investors to shy away for the time being.

    As reported in a leading business daily, major developers, who have seen their share prices plunge 90% from last year's peak, expect the market downturn to last another 3 to 4 quarters even as property markets elsewhere in Asia show signs of turning a corner. And developers have been caught in a vicious cycle. Plunging stock markets were instrumental in taming demand, which led to the abandonment of various new projects, which in turn stagnated growth and kept the stock prices in a depressed state. While developers are desperately looking to reverse their fortunes by re-sizing and re-designing apartments, at present, the only move that will brighten people's buying mood is further reduction in prices.

    Domestic market is grabbing the limelight
    Given that the developed markets in the world are struggling to keep their head above water and that India is in relatively better shape despite the slowdown in the country too, it is no wonder then that India Inc. is increasingly turning its attention to the domestic market to enhance performance. Take the case of Tata Steel. The steel behemoth has pinned its hopes on the Indian market to pull it out from the slump it has gotten itself in. As reported in a leading business daily, while the company expects steel prices to hover at around half of last year's peaks, it is confident of growing sales in India by one-fifth in the current fiscal. This is based on expectations that the steel demand in India will grow at 5-6% this year, which given the perilous state that the global economy is in, the company feels is not so bad at all.

    But Tata Steel is not the only company finding the Indian market attractive. Indian IT players have joined the bandwagon too. With recession in the US, Europe and Japan forcing overseas clients to trim technology budgets, Indian IT companies are scrambling to raise their share of the Indian software and IT services market. Infact, as reported in a leading business daily, IT stalwarts Infosys and TCS are aiming to earn US$ 1 bn in revenues from the Indian market in the next three to four years. Since many of the sectors in India are looking to step up their IT spending, Indian software majors, who are realigning their focus accordingly, will stand to gain immensely in the future.

     

     

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    1 Responses to "Real estate's perpetual problems"

    md ayub alam

    Jun 11, 2009

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