It seems the slowdown in the real estate sector has started hurting developers because many builders in the city have borrowed funds from private money lenders at as high as 36% interest rate.
It seems the slowdown in the real estate sector has started hurting developers because many builders in the city have borrowed funds from private money lenders at as high as 36% interest rate. And a majority of the private lenders are NRGs operating from Mumbai and other metros of the country, sources in the city’s realty sector said.
For the last few months, the city’s realty market has been in a state of despair as demand for property has fallen drastically. It is not that people do not need houses any more. They are simply delaying a decision on purchasing houses in anticipation of a fall in property prices, the sources said.
Ahmedabad real estate market is heavily dependent on investors - i.e., people who buy property not for personal use but to sell them later for a profit. Sources said the flow of money from investors has dried up, thereby causing funds crunch for builders. This has forced developers to borrow money from other sources, including private financers. “Private financers give loans on as high an interest rate as 36% per annum,” said a source. For the loan from private financiers, realtors have to mortgage property whose worth is more than the cash they have borrowed.
Sources further said that the realtors’ mortgaged property is safe so long as they are able to return the money on time as lenders cannot sell off the mortgaged property even if the market recovers in the short term.
What is significant is that developers prefer to borrow money from the market rather than offer discounts to actual buyers, sources said.
The market is not moving in the direction the developers and investors want them to move. Source said that some investors had already started offloading their properties at lower rates. And if the demand from buyers does not improve in the coming couple of months, the developers will begin to feel the heat of mounting interest rates and repayments. That may force them to offer property to buyers at lower cost, a source said.
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