What Is In Store For Real Estate Amidst NBFC and Liquidity Crisis? By Dr.R.Kumar- Managing Director, Navin’s
The recent NBFC crisis and the liquidity crunch in the financial institutions could pose major problems for the Real Estate sector. The Real estate sector just started showing some improvement in the year 2018 after a long down cycle, which also got aggravated in the years 2016 and 2017 due to the introduction of RERA and GST. Despite the short revival of the Real Estate industry after the 2008 Global economic crisis which sustained to about 2012 started struggling from 2013 and faced a long cycle of recession. This is due to both the slowdown in the rate of economic growth as also due to over hyped growth phase in which the hype sustained till 2014.What Is In Store For Real Estate Amidst NBFC and Liquidity Crisis? Explains Dr.R.Kumar- Managing Director, Navin’s.
The pains of Real Estate industry became very apparent from 2014 which faced major setbacks due to the various, successive reforms such as introduction of RERA and GST. These reforms themselves came close of the heels of demonetization, which dampened the money flow all by it temporarily. The Real estate developers have been surviving and were managing the downslide by taking various measures including slashing down new launches, holding down the price levels, offering attractive schemes for the buyers and resorting to borrowings to tied over cash flow problems. During that period when most of the FDI and FII were trying to pull out, NBFCs were aggressively pursuing the opportunity to fund the Real estate industry. The banking sector on the other hand was struggling from huge NPS which constrained fund flow from banking.
The introduction of 18% GST on ongoing real estate projects dampened the sale of under construction projects while the RERA was compelling builders to complete the project as per schedule. Amidst all these dark clouds the PMAY scheme offering incentives for budget homes was the only silver lining.
In the above circumstances when the ILFS crisis spanned out it further crippled the fund availability from the NBFC to the real estate industry. The would cause a major constraint for the real estate players who still need huge funds to complete and deliver their under-construction projects. Those developers who have already been rolling over the funds from different channels like FII, banking and financial institutions and finally NBFCs would find the going tough. However, the extension of the PMAY scheme by one more year offers some relief further there are some GST rate cuts which are expected to be rolled out shortly based on the recommendations of the committee and other tax and monetary incentives for revival of the housing sector expected before or during the vote on account would provide the much needed respite.
However, builders with strong financial discipline and with completed or near completion project availability as well as those with strong financial capital investment will be able to sustain and grow by ensuring delivery of projects to customers. Its probably the best time for all Real estate developers to adopt strong financial discipline and focus on delivery of projects as per commitment to the customers.
For more updates on the architecture and interiors industry visit: www.fortunestreets.com