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Postby webmaster » Sun Apr 19, 2009 11:59 am

Times Of India 19-Apr-2009 Edition


Buyers are lying low and the new mantra among developers is affordable housing. Sunday Times tracks the changing seasons in the property market.
Prabhakar Sinha | TNN

When Kaushik Moitra bought his 1,000 sq ft apartment a year ago, he thought he was doing the right thing. The 36-year-old resident of Kolkata works as an interpreter for a German multinational. He bought the apartment at Fortune City near Kolkata airport thinking prices would hit the roof if he didn’t act quickly. But an appalled Moitra saw the value of his apartment drop more than 20% within the a year. “With hindsight, I feel I should have been more prudent. I’m hugely disappointed at the way things have changed in a year’s time,” he says.
There are many like Moitra who hadn’t bargained for the domino effect of the global economic meltdown.


Property prices across India have fallen sharply in the last six months as buyers virtually disappeared from the market. To lure them back, apartments in newly launched projects are being offered at hefty discounts – anywhere between 25 and 30%. Finished property became cheaper by 20% over the last year and prices are likely to decline further in the months ahead, say trade watchers.
Many say it was a course-correction; an adjustment waiting to happen. Feverish speculation had pushed prices to unrealistic levels: for instance, they jumped three to four times between 2003 and 2007. “Such a steep rise made housing out of reach for end users,” says Anshuman Magazine, MD of the global consultancy firm CB Richard Ellis. The spiral lured developers to invest money in land. They accumulated land by borrowing from banks and other institutions. The rise in interest rates by almost two percentage points from 10% in early 2008 added to the pain. In September 2008, as the global financial crisis erupted, transactions in the realty sector virtually ground to a halt. As the cash flow dried up, many builders came close to defaulting on loans. Buyers, on the other hand, were still marking time. This is why a number of developers recently announced new projects at heavily discounted rates. As added incentive, many of them promised to pass on the benefits of any further fall in prices to existing customers. Developers say this has instilled confidence in the buyer who is ready to close the deal.


The strategy seems to be working. In the National Capital Region, for instance, developers such as DLF, JP Associates, Amrapali, Gaursons, Supertech, and Mahagun launched projects in west Delhi, Gurgaon, Noida, and Indirapuram in the past few weeks. In Bangalore, builders such as Purvankara and Shobha launched projects at a discount price of 20%. The response: DLF sold around 1,400 apartments in west Delhi in two days at Rs 4,500 and Rs 5,500/sq ft. It was much cheaper than the going rate of a Delhi Development Authority flat in the same area — Rs 6,000 to Rs 8,000/sq ft. Similarly, Amrapali and Mahagun sold a number of apartments in Noida at around Rs 3,300/ sq ft in a two-week period. The current going rate for a finished apartment there is upwards of Rs 4,500/sq ft.
Clearly, attractive pricing is the way to revive buyer interest. But timely delivery of apartments remains an issue of concern. In a reassuring move, several developers have doubled the penalty they will pay buyers for delays from Rs 5/sq ft per month. But that’s not enough, say real estate consultants. “Before buying into a project, buyers must check out the credibility of the developers,” says a consultant. “The most important thing to find out is whether the land belongs to the developer or not. Buyers should also check whether the builder has received all the necessary clearances or not.”
Another reason for renewed buyer interest is that the apartments offered are smaller and hence more affordable. Apartments in newly launched projects are smaller by 30% now — to around 1,000 sq ft for two-bedroom and 1,200 for three-bedroom. This means the effective fall in prices amounts to around 40%. However, the new apartments are inferior in many ways. Builders now promise mosaic floors instead of granite and vitrified tiles. They provide ordinary kitchens instead of modular ones. But as a senior builder points out: “When affordability is the issue, pricing is more important than specifications.” Sanjay Verma, MD of Cushman & Wakefield, is succinct: “The present slowdown has made the developer community correctly identify end-user needs and keep affordability in mind before embarking on new projects.” The trend, therefore, is for developers to launch affordable housing in the NCR and other parts of the country.
But the road to recovery is still some way off, say trade analysts. The economic slowdown and drop in consumer confidence has affected residential markets across India. Only a few markets, such as Chennai, have remained relatively unaffected — primarily because of lack of supply. Elsewhere, the fall has been greater in the premium segment, both rental and capital values. As things stand, the market remains sluggish despite lower bank lending rates and attractive deals from developers.


The problem is unfinished projects launched in 2007 and 2008, when prices were high. Today, developers are unable to off-load unsold apartments at the original asking price. Some have lowered prices and tried to pass on the benefit to customers who bought at the original launch price. But others are launching new projects in the same development, albeit with cheaper specifications. Consumers, especially those who bought property as an investment, feel trapped because they can only sell up at a huge loss.
But there’s a silver lining in the slowdown. It’s giving many the chance to have what they always wanted — a home to call one’s own.
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