• News
  • Columns
  • Interviews
  • BW Communities
  • BW TV
  • Subscribe to Print
BW Businessworld

High Prices Pull Down Sales

Photo Credit :

Builders, wanting to make a killing during the Dussehra-Diwali festival period, upped prices and killed an opportunity. Buyer inquiry was mistaken for the return of good times. But unrealistic prices has put off consumers.

During Diwali, realty pundits had expected a flurry of buying on the back of lower prices, freebies and special festival offers. "The expected discounts during Diwali did not happen," says Pankaj Kapoor, CEO of realty tracking agency Liases Foras. "We did not see much movement because of higher prices."

Shashi Kumar, head of the real estate wing at Birla Sun Life Asset Management, is more unsparing in his criticism: "Builders have not learnt their lesson; their greed is ruining the market." Mumbai's Stamp Duty Office registration data reveals there has been a 13 per cent month-on-month drop in the number of apartments registered in August 2009.

Undeterred, builders are gung-ho about increasing sales and demand. Mumbai-based builder Vijay Wadhwa claims he sold 80-100 flats during the festival season. DLF, one of India's largest developers, says it has mopped up Rs 100 crore in advances for the 1,250 apartments in the second phase of its Capital Greens project at Moti Nagar in Delhi.

The revival in the market is perceptible. Demand grew by 15 per cent during the July-September quarter. HDFC reported a 26 per cent increase in loan disbursements for April- September, totalling Rs 22,343 crore. However, this is still a far cry from the 35-40 per cent demand growth in the October 2007-March 2008 period.

Clearly, the property market is not out of the woods even though some segments are reporting higher sales. Tapasije Mishra, group CEO of IDFC-SSKI Securities, says the affordable housing segment has seen good sales in the past two months. However, Wadhwa says many of these are distress sales and in many cases, "the margins are just Rs 200-300 per sq. ft".

The commercial market is still to pick up and leasing rates continue to plummet. For instance, Hindustan Construction Company is realising lease rentals way below expectation for its swanky corporate park in Mumbai's suburb of Vikroli at Rs 45 per sq. ft a month. Similarly, Samsung recently took 90,000 sq. ft on rent on Gurgaon's Golf Course Road for Rs 58 per sq. ft a month against the prevailing rate of Rs 80. This trend is likely to continue with increasing supply. Property broker Jones Lang LaSalle Meghraj projects the December supply to touch 55 million sq. ft against a demand of 25 million sq. ft in the period.

Realtors are becoming innovative to keep their heads above water. "When under pressure, they reduce rates for some new projects and rake in their working capital needs," says Liases Foras's Kapoor. "Then they hike them again and adopt a take-it-or-leave-it attitude." Builders have also got a reprieve with foreign investment coming in, which has allowed them to convert their debt into equity on a project-by-project basis. "A further 30-35 per cent fall (in prices) in the residential market is necessary for property economics to become sustainable," says Kapoor.

(This story was published in Businessworld Issue Dated 02-11-2009)