Invt may not get anticipated returns: Realty cos

It's the first concrete sign of alarm bells ringing in the realty space. Real estate developers are admitting that investors may not quite get the returns they had anticipated.

There has been talk of the real estate sector underperforming this year. Now, for the first time, developers are admitting to their problems. They are in fact going a step further and caution that institutional investors may not make the returns they had earlier anticipated.

Ravi Raheja, Group President, K Raheja Corporation, said, "The growth in the sector is not going up 10 times as is being widely believed but about 2 times. Investors will not make as much as they thought."

Last year, fearing a bubble, the government had banned ECBs and cautioning banks to reduce their exposure to the sector. The interest rate hike resulted in developers borrowing at almost 14%. More expensive home loans have even softened demand. But it looks worse this year.  Margins suffer due to the increase of input costs, higher wages, and the likelihood of yet another interest rate hike. Chetan Dave, MD and CEO, Sun Apollo Real Estate Advisors, said, "The cost of construction is going up by about 15% in the last few years. We expect it to grow a further 5%."

The solution, according to developers, is in playing the volume game as exemplified by DLF, Unitech and K Raheja Corporation. With the cost of borrowings going up, Raheja is also relieving some of the pain by borrowing earlier than required.

Even private equity players are wary, this is despite real estate getting the lions share, almost 28% of the total PE investment in India last year.

By Shereen Bhan & Nayantara Rai/CNBC-TV18

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