The stagnant real estate market is witnessing a significant shift in stance by investors.
These investors, who previously purchased new apartments in bulk in the hope of earning a premium on appreciation, are not keen to buy so many flats nowadays.
How do investors gain?
They say that with no signs of a revival of property rates, they prefer to offer funds to developers at high interest rates.
Developers, restricted by limited financing from official channels like banks, have little option but to agree to pay the high rates. For investors, this route eliminates the uncertainty of flats remaining unsold or losing on their investments when forced to sell at lower prices.
What is causing this shift?
These investors are disappointed that there has been no improvement in the real estate market in the past year or so.
"Property rates have been stagnant and at some places developers have had to sell flats at lower prices. This has restricted our purchase of flats.as investment as it is difficult to exit with liquidity," said one investor, requesting anonymity. "So we are offering loans at high interest to developers who need funds."
What do analysts say?
Pankaj Kapoor, managing director, Liasas Foras, said investors are in fact shifting the risk to developers.
"The market is not moving up. There is so much inventory that it has resulted in a drop in prices. If property prices fall by 20-30% it could cause a huge loss for investors. So they have chosen the safe route to park their money. This will also ensure some profit for them," Kapoor said.
Where is industry headed?
The head of the real estate research firm explained that this is part of the industry cycle.
"Investors always seek to put their money in productive areas. The return is very important. If the return is not good even small investors shy away from buying. Today there is a huge gap between affordability and demand. Buyers are finding it difficult and this had impacted prices," Kapoor explained.
What are the signs?
The Maharashtra Chamber of Housing Industry (MCHI) organized a property exhibition recently, but found the response tepid.
"Most big developers didn't participate in the MCHI property exhibition as there is no point in spending so much money for stalls without assured returns," said a senior developer from South Mumbai.
But Manohar Shroff, general secretary, MCHI (Navi Mumbai), said the high interest rates demanded by investors would make projects non-viable. "It's difficult to pay the high interest rate as the market is stagnant. Unfortunately, with banks not prepared to lend sufficiently to developers, they are left at the mercy of these investors," Shroff said.