Saturday, January 3, 2009

Managing liquidity will be the key challenge - Mona Chhabra, Ernst & Young

In an interview to Praveen K Singh, the associate director—real estate practice at Ernst & Young, Mona Chhabra, says that at the moment, a focus on project development (execution) of projects which are conceptualised on a rigourous demand-supply analysis is imperative. Excerpts:

How you foresee the New Year?

The challenges of 2008 will continue for some time into 2009. However, the good news is that the Indian economy is still a growing economy and is likely to grow at a rate next only to China’s in 2009. This along with demographic factors such as a growing population are inherent demand drivers for real estate. Hence, after some period of price stability at affordable levels and with an uptick in the economy, things are likely to gradually improve.

What are the major challenges in front of the sector?

The key challenge in front of the sector is managing liquidity. While a lot of capital has gone into acquiring land banks in the last few years, it will take some time to generate cash flows from these. Further, in case of projects under development, the economic slowdown is affecting sales. This along with the fact that a lot of companies have debt, has created a liquidity challenge for various players in the sector.

What about developers holding to the price line. Do you feel that it needs corrections to cope with the downturn?

In case of existing projects where some sales have happened, it is difficult for developers to reduce prices per se since the previous bookings can get affected. However, some players are offering discounts, easier payment structures, etc. without reducing the basic price.

In case of new projects, the need is even more apparent now for a better assessment of demand and the product price matrix.

Product positioning and differentiation would help since it would reduce the me-too product offerings and hence, protect against supply overhangs.

For instance, earlier we saw a plethora of premium housing projects with now everyone talking about affordable housing. In case of the latter, the good part is that the implicit meaning of “affordable” tends to vary across different players with the variations being across a relatively broad price spectrum.

Why banks are shirking away from lending and private equity shying away?

They have not really stayed away - both the banking sector and private equity funds have provided capital to real estate players as per their risk-return matrix. The banks have extended credit within the ambit of the RBI guidelines.
To read more, please, visit - expressestates

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2) RBI cuts key rates to stimulate economy

3) Economists see robust growth in FY09

4) Return of animal spirits

5) Overseas funding to boost real estate

6) Indian Real Estate Developers to meet the RBI Governor to demand more sops for the struggling real estate sector

7) Credit flow to developers - RBI's interest rate cuts and the fiscal stimulus package do little to address the realty sector’s main source of trouble

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