The recent cabinet approval to the long pending Real Estate (Regulation & Development) Bill brought some cheer to the realty sector. However, it seems the optimism was short lived. As an article in The Economic Times suggests, the demand of rental accommodation in metros has fallen almost 50%. At the same time, the actual rents are down by a quarter. These are the dismal indicators indeed, not just for the realty sector, but also of income and affordability levels in metros that house most of the service sector and its employees.
Indian companies are in a cost cutting mode. The economic slowdown and declining corporate profits are casting shadows on corporate hiring plans. Infact, employees are getting fired. Normally, rental expenses constitute around 15%-20% of company's costs. As such, relocation budgets are getting adjusted and companies are shifting to local hirings. Even in the cases when companies are renting accommodations, the employees are looking at cheaper options because of the affordability issues and rising inflation.
All these measures have impacted the country's prime property markets. Be it Bangalore, Mumbai or Delhi, the brokers and houseowners are having tough time to ensure occupancy levels at desired prices. Sooner or later, this will also have an impact on builders and property transactions. The reason being that people buy property not just for living but also for investment proposes. With demand for rental accommodation facing a downturn, the return on investment will go down. At the same time, the buyer is likely to get stuck with a huge loan and low return asset. To conclude, the real estate segment seems to be in a tight spot. And if the country's economic state is anything to go by, its struggle is unlikely to end anytime soon.