Since most builders have hiked prices, along with the recent budgetary proposals, it is likely that realty sector may lack in demand in the long term.
Under the Union Budget 2010 announced by Mr. Pranab Mukherjee, the realty sector has not been able to get much. Although some acts were made, a lot remained unvoiced. Schemes like extension of one-year for completion of housing projects to allege tax benefit or acceding a greater proportion of commercial space in city projects or an extension of one year for interest rate subvention may sound as a boom to few but would actually hit both developers and buyers at large through the imposition of service tax on under-construction housing projects.
IMPACT OF BUDGET ON SECTOR FINANCIALS
Decline in profit marginThe December quarter saw a growth of 27% in net sales for the industry driven by the launch of affordable housing projects by leading builders including Unitech, DLF, HDIL, Orbit, Sobha and Puravankara among others. Nonetheless, there is a downfall in profit margins due to this increase in sale. The offer of mid-income housing is not 50-60 % margins available in the premium and luxury segment resulting in industries working on operating margin of about 35-40 % while net profit is down to around 20-25 % from 50% in the December 2008 quarter. Margins were further hit for the above developers as these companies reported an increase in the cost of construction. Also, due to the service tax, apartment cost would go high resulting in discouraging the buyers.
GLEAM OF HOPE
Looking for futureAn increase in sales of residential units is expected as per the analysis made from the registration and mortgage data. A strong 30% growth in loan disbursal in the December 2009 quarter over last year has been reported by some large housing finance companies, such as HDFC, LIC Housing, SBI. Since most builders are increasing prices rapidly, along with the budgetary schemes, it is expected that the sector may see some decline in demand takeoff. However, companies that maintain a strategy of competitive pricing may be able to carry on their growth.
