Sunday, December 24, 2006

REALITY Alarm bells !!!!!!!!!!!

An obvious fallout from the property boom in the last two years has been a phenomenal mushrooming of new real estate developers. And now with the subsequent correction in prices along with the sheen wearing off from tier II cities, alarm bells are ringing at the signs of an impending shakeout.
The proliferation can be gauged from the fact that more than 4,000 to 4,500 small and medium developers have mushroomed in the last 24 months. In 2004, there were an estimated 1,500 to 2,000 developers across the country but the realty boom has taken the figure to more than 6,000 developers. In fact, entrepreneurs from diverse industries and backgrounds, both big and small have now got on the realty bandwagon.

However, now many in the industry feel the reason for correction in real estate prices is also due to problems that have enveloped some of these projects. Some new developers in many active markets have launched projects without taking required approvals from the state governments. Also, being new in the real estate sector, many developers have overbooked in certain pockets, which has resulted in prices crashing down and in many cases investors haven’t even got back the initial booking amount.

Says Sanjay Verma, executive MD, Cushman & Wakefield: ”The fast paced growth of the real estate industry is also giving rise to a large number of small and medium new developers. It’s natural that with the number of new projects growing, the development companies operating in the sector will increase. And given the scale of expansion this industry is bound to experience, it’s becoming increasingly critical and challenging for consumers to evaluate various options and understand various risk factors related to the developer and the project.

“Given the lack of background and track record information disclosure and established corporate governance for new small and medium players, this scenario further enforces the demand for creation of a federal regulatory body specifically for the real estate industry. In the long run, it will lead to consolidation in the industry.” Concern is mounting among both consumers as well as larger players over the sustainability of smaller new players who don’t have the requisite expertise. While in some cases investors may be stuck with dud projects, there are concerns over the negative rub off on the whole sector as a whole. Says Sanjay Chandra, MD, Unitech Group: ”People who don’t know what it takes to deliver a product and don’t have a organisation history and experience have entered the real estate sector in the last two years. In future these developers will find it tough to deliver a project and the end consumer will be the worst hit. A state regulator will help to track down all the black sheep which has entered real estate business in the last couple of years.”

Interestingly, these new developers were using the pre-launch route to announce their projects but now many state governments have banned the pre-launch schemes. They have also issued notices to several developers to return the money deposited by investors. Additionally, some of them have been castigated for not even having projects cleared from the governments and inviting bookings from consumers.

Tier III cities like Bhiwadi, Palwal, Rudrapur, Bhatinda and Dera Bassi, which have been the focus of some of this proliferation, have seen prices come down by 20 to 25% in the last two quarters and speculative activity has also come down in several pockets.

Says the promoter of a top real estate group, “It is all related to growth and in this kind of boom, one does see these kind of operators in the market. Frankly, you cannot stop them from entering the market and slowly you will see them fizzling out. Though both the industry and the consumers will be victims, this is the how the market functions.”
source :- economic times


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