2011 was definitely a bad year for the real estate sector. Evaluate the sector on any performance indicators such as new project launch, demand or sales for the year. You will end up with same bleak picture. New project launches in the regions such as Mumbai Metropolitan and NCR (National Capital Region) went down by 60-70% as compared to previous year. And the worse, despite such low new project launches, more than half of them were remained unsold in 2011. This clearly indicates the pathetic demand environment that prevailed over the real estate sector in 2011.
There were many factors that led the whole real estate sector into such a miserable state. It starts with the stubborn inflation which remained at high levels throughout the year. Rising prices of essential goods left the consumers with less disposal income. Then, to control the inflationary waves, Reserve Bank Of India (RBI) kept on increasing the interest rates. Interest rate is one of the most important driving factors for the demand in the real estate market as most of the consumers opt for the loans to finance their purchases. Hence, rising interest rates kept the consumers away from the property markets during the year.
While inflations and interest rates were creating holes in the consumers' pockets, there was a complete uncertainty in the global economic environment. The year witnessed debt crisis in the US and many European countries such as Greece, Italy and Spain. It adversely affected the business confidence of the corporate world. In turn, this led to the job insecurities especially in the sectors such as IT (Information Technology) and Financial Services. Please note that these sectors have been the main drives for the demand growth in the real estate sector in India.
And the worse. The property prices did not witness any significant dip despite the weak demand. After the slowdown in 2008-09, the property prices have been on the rise and nearly doubled in the last two years. Consumers were expecting some corrections considering the adverse situation in the sector. However, the builders refused to do so. Even in the future, price corrections seem a totally distant thought. There exists a definite pent up demand for properties. At the same time, RBI has already paused the key rate hikes. In the future, interest rates are expected to come down. All this would boost the property demand in the future.
However, demand revival would take time. 2012 may not witness the complete revival in the sector. But there is something good expected to happen in the next year. Real Estate Regulation Bill is going to be tabled in the parliament. This bill is aimed at bringing in more accountability and transparency in land and home transactions. It would promote a healthy real estate development. It is expected that the proposed legislation would lead to better information-sharing and decision making, between real estate developers and the consumers. Besides looking at the corruption and arbitrary pricing in the sector, the real estate regulatory body would also promote affordable housing.
All this would give consumers a reason to cheer in 2012. At the same time, it may put the whole real estate sector on a definite brand new growth path.