According to real estate consultancy Jones Lang LaSalle, the absolute cost of construction has increased by about 25% to 30% over the last 4 years and the capital values have gone up by about 20% in major cities in the country.
The current cautious market sentiment is likely to continue until the H1 of 2014.
Cost of finance up
The cost of finance has increased in the light of banks’ reluctance to fund what is currently perceived as a high risk sector.
In addition, most of the private financial institutions have also switched from providing equity funding to debt funding. Equity funding involves taking some risk against expectation of higher returns and debt funding on the other hand is usually at a high fixed interest rate.
Mr Anuj Puri chairman and Country Head of Jones Lang LaSalle India in the sector review for 2013 and outlook for 2014, expects the market sentiment to improve during second half of 2014.
Tracing some of the key trends in the backdrop of tough economic scenario in the country, the report highlights how there has been some shift of bargaining power in favour of buyers during 2013 and there has been rise of the suburbs.
Affordability to drive growth
Providing a broader outlook for 2014, the consultancy sees affordability will drive growth in 2014.
With availability of land in urban agglomeration being scarce, redevelopment will emerge as another growth driver in a scenario where there is cost an time complexity with regard to and acquisition. Therefore, Indian cities present an exceptional opportunity for developers.
Source: Steel Guru