“The Indian property market is likely to see an improvement this fiscal year” reports the Global Rating Agency Fitch. The reduction in interest rates and the upgraded scenario of the Indian Investment Market has brought a good news for the debt-ridden real estate development companies.
In January, the Reserve Bank called for a 0.50 per cent reduction in the key policy rates. This, in turn, will prompt the commercial banks to offer home loans to the buyers at reduced interest rates. It is also beneficial for the property developers as they will have greater exposure to the middle class and lower-middle class home buyers who did not invest in properties because of the high rates of interests.
Though the developers offer easy payment plans to cater to the needs of middle class home buyers, the year 2014 saw a slower cash collection. The drop in demand of homes resulted in weak sales. Due to the elections in 2014 and uncertainty about the party in power, buyers preferred to postpone their investments. To make up for this reduction in property demand, a number of developers came up with innovative payment plans. For example, if you want to buy property in Noida, several developers offered the subvention scheme wherein you would have to pay 10-20 per cent at the time of booking and the rest will be loaned by the bank, interests for which will be paid by the developers till possession.
However, such schemes resulted in a lengthened ‘cash collection cycle’. This is why, in the first half of fiscal year 2015, the developers will have a crippled balance sheet, but the situation will improve with time. Lower domestic interest rates will significantly reduce the developers’ debts by the end of this fiscal year.