News & Views on Indian Real Estate

Tuesday, September 16, 2008

Demand For Houses In Small Towns Falls

A study by the Associated Chambers of Commerce and Industry of India (Assocham) has revealed that housing demand in small towns witnessed a 25 percent fall during February-July 2008 because of higher borrowing costs. Assocham Secretary General, Mr. D.S. Rawat said, "Approximately 15 million people in about 30-40 tier II and tier III cities were unable to make purchases as higher inflation and interest rate have dampened their enthusiasm and eroded their budget." The Assocham study is based on results given by affiliated real estate majors like Parsvnath, Omaxe, DLF, Unitech, and BPTP, which are developing projects in small towns. Besides rising cost, non-availability of inputs such as bricks, cement and steel, and power shortage also cause inordinate delays in project completion. The chamber has suggested that the government introduce real estate investment trusts (REITs) to bring the much needed class of institutional investors to strongly support the domestic real estate market. As per Assocham, REITs can also help develop commercial mortgage backed securities (CMBS) market and create a source of cheaper debt for commercial real estate.