Property prices soar higher

When Mumbai's — and arguably India's — largest realty expo opened on Dussehra, homebuyers were expecting the battered builders' fraternity to announce a drop in rates to woo them. Far from it, the developers stood united under the banner of the Maharashtra Chamber of Housing Industry (MCHI) and went ahead with the introduction of a 10 to 25 per cent hike in rates across the board, taking everyone by surprise. "On one hand, the cost of raw materials has shot up in the past one year and on the other hand, the clearance of new projects by the civic authorities is moving at a snail's pace, due to which there is a limited housing stock in the market, which in turn is contributing to the rising prices," says Boman Irani, Secretary, MCHI, adding that with developers across the spectrum introducing fresh hikes, now is the right time for homebuyers and investors to buy, before the prices move further north.

The sharp increase in interest rates on housing loans, the drop in the number of real estate transactions and an overall slowdown in the realty sector — these are all for real. But a sharp fall in real estate prices has remained a pipe dream for prospective homebuyers who have been diligently pursuing that elusive great deal. Property sellers — developers, investors as well as genuine resellers — are holding on to their rates, preferring to lose some money for the holding period rather than take a sharp cut in the selling price.

What's even more surprising is that many developers are bearing the brunt of high interest rates for financing their projects, but resolutely resisting the temptation to drop rates. "Even I am surprised that the builders have held on to their prices," admits Anuj Puri, Country Head of Jones Lang LaSalle India, adding that there is still enough steam in the market and he foresees that the rates are unlikely to reduce at least for the next four months. "If the current cash flow situation and tight market conditions continue till year end, then there may be some cutting of rates. Otherwise, we don't see any downward price revision in residential realty," Puri says.

Aggressive approach

Even as a buzz is being built about developers being cash-strapped and in a tight corner, the reality at the ground level is a different story altogether.

Mumbai-based realty consultant Navin Ajmera, asks, "Everyone is talking about 10, 20 and even 30 per cent drop in real estate prices, but how many people have actually purchased a flat for a price much lower than what was quoted six months back?" He adds that sellers are balancing the potential loss by way of interest costs on the selling price and holding on to the property till they get their cut-off rate, rather than selling property at a much lower rate and suffering a huge loss upfront.

Barring a handful of developers — both big and small — who have overtraded during the realty boom that started in mid-2009 and was prevalent till about six months ago, most builders have made enough profits over the last decade to sustain the current turbulence in the market. "Never mind the air of pessimism in the market, these developers just refuse to discount their rates and would rather wait it out," says Nirnanjan Hiranandani, Managing Director, Hiranandani Constructions. "Developers who heavily leveraged their positions are facing a cash crunch and a debt situation. But dropping prices is no guarantee that you will get buyers. The solution for them is to restructure the debt-asset portfolio to more manageable proportions. For the rest of us, there is no immediate pressure to drop rates," he says.

When asked if he himself will drop rates in the near future, Hiranandani said that the pricing is benchmarked against the market and for now, there is no plan to drop rates.

This aggressive approach on part of the sellers and the limited floating stock in the market has left genuine buyers with no choice but to pay the prevailing price for quality projects. "Unlike the stock market, which is totally investment-driven and prone to corrections, the real estate market is significantly driven by the necessity of end users. The limited supply of land and housing stock in Mumbai and the strong demand will ensure that the realty market bounces back sooner than later," says Ajmera.

Visible turnaround

If the developers are to be believed, hints of a turnaround — even if minor or temporary — are already visible. "The enquiries began trickling in from Onam and Gudi Padwa, and the market has picked up after Dussehra. Moreover, the huge response during our four-day exhibition will keep the momentum going for the next couple of months," says Paras Gundecha, President of MCHI, adding that more than 40,000 visitors turned out for the expo, resulting in bookings to the tune of billions despite the aggressive pricing by developers.

Crisis of confidence

The slowdown in the realty sector and the resultant drop in buyer confidence may just be an opportunity in adversity for the real estate sector to get its act together. Addressing delegates at a recent real estate conclave organised by the Confederation of Indian Industry, Ajay Piramal, Chairperson of Piramal Enterprise, said: "Be it completion of projects on time or keeping the commitments, the real estate sector enjoys low credibility with the consumer." Piramal said that the current slump is the right time for the sector to introspect on its business practices and take initiatives to renew consumer confidence.

Speaking on the occasion, Adi Godrej of Godrej Group said that the real estate industry should work towards a more transparent business culture and weed out corruption from the business for a sustainable and healthy future.

— A.R.