LIQUIDITY CRUNCH BADLY AFFECTS KERALA’S REAL ESTATE SECTOR
When slow down hits the market every sector will be affected badly. Kerala, god’s own country, witnessed a real boom in the real estate sector recently. Which was the first of it’s kind in the tail ender state of the country. Land broking had become a lucrative business for hundreds across the state. The hike in land and property prices made life simple for land owners and there were some who skipped their dreams of owing a home. Some became immensely rich and some lost all hopes. Bankers showered loans against properties, new houses started smiling every where along the state of coconuts. ( There were sayings that grooms never worried about the gold they get but were concerned only about the land owned by their father in laws). Work of fictions came one after another based on the booming trend in real estate sector. So many resigned from their jobs and became land brokers. They even bought land only for the purpose of selling at a higher price within the difference of few days. Actually this practice sky rocketed the prices. Flat farming seen every where including rural areas.
But change, as always, happened rapidly. This time this was in the form of Global economic slow down. After the collapse of Lehman Brathers in the US things were not like how it had been. Every thing changed in line with the meltdown in share markets. Indian share markets witnessed it’s all time peak in January 2008 but it took only nine months to wipe out more than 60 percent of index points. On a global basis realty indices nosedived. In India also realty indices witnessed a downward trend. These indices witnessed 5-10 percent down on a daily basis. India real estate companies witnessed a huge sell off by investors including FIIs.
In line with the current financial crisis and liquidity crunch kerala’s real estate sector also witnessed slow down. Slow down in terms of demand was visible at first but when the crisis deepened the magnitude of the crisis also increased. ‘Recession’ was the word heard loud (sometimes louder) among the people and across all business segments. In kerala, shadow of the slowdown fell on the real estate sector at first. But which was not an immediate impact. When recession came the real estate sector in kerala was already in a dull stage. According to brokers this was due to some government polices. Some of the policies by the government (LDF govt headed by V.S Achutanadan) were not encouraging for the real estate sector of the state. Recently Kerala govt issued a price list for places across the state but later it was removed after found the prices were wrong. There were complaints about the mispropotions between the actual price and prices furnished in the list. Left government’s Munnar operation was the main reason for the slow down in the real estate sector. (Munnar operation aimed at taking back the revenue land from private encroachers. It failed badly because encroachers include various political parties)
Munnar operation was a failed attempt from the side of the government but it made some impact on the land and property prices in the state of Kerala. Brokers said which will not last for long. But this minimal effect got worsened when the Global slowdown appeared on the centre stage. Immediate effect of the slow down was that the number of transactions went down, down means some where near zero. Stock market meltdown also played an active role in the scenario. Another culprit was the rise of inflation figures. Due to which reserve bank raised bank rates and loans had become costlier. When the fund flow got a block it adversely affected the real estate market. In kerala the well praised smart city project was also delayed. Builders across the state found it difficult to finish their projects. Project cancellation also taken place.
In Kerala flats were bought by NRIs and techies. When the slow down showed it’s vulgar face flats remained unsold. Particularly for IT employees it was a state of panic because every where they are hearing about job loss. Some techies found it difficult to pay their EMIs. But according to kerala builders forum, which is the organized body of the real estate sector in the state, the building industry will be seeing no fluctuations in the coming years.(it is unbelievable). They say that in 1996 also same situation was there in the country but the prices were stable in kerala.
But according to Joseph Nivin, VP, Geojit Property Services, the situation is not good at all. (Geojit Properties Services is a new born child in the real estate broking front of the state). According to him 35 percent down has been witnessed in this sector so far. Builders are adjusting prices some 5-10% to tackle the prevailing situation. Funds are not flowing as it were in the past and the same situation will continue for at least 2 years said Joseph Nivin.
Skyline builders Deputy Manager sales, Ms Jamuna also agrees with it. She says the number of enquiries are too low. As they are concentrating mainly on NRI clients the situation is not good because in Gulf countries also reported job losses happens. Upcoming Builders are not getting project approvals from various banks she added. New project booking is very low but right now they are not facing any project finishing problems because their ongoing projects are almost finished or about to finish.
What will be the future?
This is a million dollar question whether it be real estate or some other sector the question is when the crisis will be over. According to Joseph Nivin the current situation will continue at least for 2 years. If the equities market bounce back there will be a upward trend in almost all sectors he believes.
Actually the real estate boom in kerala started after 2000. The boom lasted for 6 years. The policies of the former UDF government headed by Oommen Chandy were favourable for the sector to grow. After the UPA government in the centre came in to power the nation witnessed visible growth in almost every sector including real estate in tune with the developments in the country Kerala also witnessed same upward trend. Land and property prices skyrocketed during the period. When the left came in to power the situation remained so only in the first year of their administration according to Subair, a kochi based real estate broker who had been in the field for more than 10 years. Then came the Munnar operation drama and after that slow down hit the state. When the slow down started to hit the gulf region the real estate sector of the state witnessed huge pressure.
Enquiry calls are nill and there is no new project also says Babish, Asst Manager sales of BCG builders. According to Subair another boon in the sector will take place only after 5-6 years. Now the common feeling among buyers are that prices will fall for sure but the sad thing is that nobody is ready to sell their land at a lower prices. As a result a stagnation has been taken place. But there is other side also. In kerala people are considering land as an asset for a life time. The number on genuine buyers is more in the state compared to other states in the country. The number of 5cent owners is aplenty in the state. This is a good sign to builders also. If the prices fall a bit there will be a huge buying interest.
The big concern is about flats. As the state as a whole is considered the people are not much interested in owing a flat. They need single homes to live (of course flats are symbol of prestige in the state but it is in the urban and semi urban areas). The architects of recent boom underestimated the sentiments among the people as a result flats started mushrooming in rural areas of the state. According to Skyline builders Usually the flat owners are NRIs or corporate sector employees. When they trapped in trouble the flat sales in the state also went down.
Now the builders are selling flats at a reduction. Apple a day properties one of the up coming builders in the state are experimenting the strategy in order to maintain the pace of sales.Everything has got up and downs. When the stock markets in the country witnessed a peak in January after that the indices came down. Real estate sector of kerala also witnessed same booming period now it is the turn of downward trend. It is a fact and it should be admitted. Like always optimism is the remedy over turbulent times. But what about policies? It should be in favour of the common man. After all shelter is a primary need of a man and it is the duty of the state to offer this to all and they should make policies accordingly and it should support the builders also (to some extent).
I am a writer. I write poetry and articles related to business and cinema. I have been writing articles for Newspapers and websites. Articles are available in the site www.pramodthomas.com
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