Pinnacle

DNA
Rajshri Mehta


MUMBAI: Wanting money to buy shares in a tumbling market, an investor who held a flat at Andheri sold it for Rs1.2 crore in a deal that included parking and stamp duty registration.
Just three weeks ago he was quoting Rs1.4 crore for the 1,000 sq ft flat. Ravi Developers is offering a discount of Rs1 lakh to Rs6.5 lakh if the flat cost is paid within a stipulated period for his project at Mira Road.
Swastik Developers recently sold 47 flats at Thane by giving a car per flat and offering home loans at 8 per cent interest by tying up with two cooperative banks.
Yet, when Shailesh Maheshwari, executive with a local financial securities firm, visited a property exhibition in Vashi recently, he was stunned by the rates quoted by developers. Flats at Vashi were being quoted at Rs3,500 to Rs6,100 a square foot, at Belapur for Rs3,200 to Rs5,100, and at Airoli for Rs2,500 to Rs3,500.
“Why?” said Maheshwari.
It’s a question that is bothering many house hunters. Over the past few months, brokers and developers admit, there has been a 45 per cent drop in the number of transactions. Some developers like Nahar Amrit Shakti and K Raheja are offering disguised discounts. Why, then, are developers not reducing prices upfront?
“Developers are squeamish about having to drop their rates for they don’t want to be seen being flexible,” says Anuj Puri, country head, Jones Lange Lasalle Meghraj, a global property consultant.
“They think it would undermine their credibility with regard to pegging proper market prices.”


Developers usually sell some properties (residentialcommercial) to investors even before a project is announced. This helps them to fix a benchmark price for genuine buyers later. Since the benchmark is determined in the initial phase of the project, the investors do not lose out.
According to a senior executive with a housing finance company, about 30 per cent flats are sold first to investors, squeezing availability in the open market. Genuine users then have to pay higher rates.
Besides the money generated from pre-sales, property experts said, developers are rolling in money raised from low-cost borrowings, IPOs, and equity from foreign funds.
“But over the past few months, the developer has had to account for high land cost, cost of construction, TDR, and labour costs,” says Ram Prasad Pardhi, proprietor, Pinnacle Realty. “If he sells at a lower rate, what will he do for the two years it will take his other projects to get completed? He cannot afford to let the interest rate meter tick if he has bought the land at a high rate.”
According to Puri, however, developers over the past year have recovered the cost of land and construction by selling large chunks of flats in phases. “As earning profit is the sole concern, they are taking time to sell the balance flats,” he says.
“Bad government polices are leading to lopsided development,” says Sanjay Shenoy, a broker in Andheri. “For every 1,000 sq ft new commercial office built, 5,000 sq ft residential area has to be constructed. This is not happening.
Instead, more commercial space and retail spaces are getting developed as they bring greater profits. This, in turn, is causing property prices to rise as there is too much money chasing too few properties.”
Shenoy also points out that most investors in the residential sector today are senior-level management executives, who already own a flat. They may have bought the flat on loan in the 1990s and have already repaid the loan, thus encouraging banks to fund their second flat.

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Ram

rajani

As the trend real estate follows, prices never goes down. It can rise at any moment and price hike rate is also high

kaku5145

In the second half of 1990 the house prices in delhi were not increasing at any fast pace (single digit increases). also now certain suburban areas are losing significant value in bangalore. So it is incorrect to say that real estate trend is always to go up.


and if you follow US real estate - prices have fallen 45% in some areas since 2005.

Pinnacle

Just like any other business cycle, realty follows the typical cyle of growth, sustain and then fall... the periods may vary though..
so its incorrect to say that Realty prices will not fall...

We are already noticing corrections in prices where rates are very unrealistically high....
and 2008 is sure to see some basic fundamental corrections all over india.
this doesnt imply a huge falls in prices all over though

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Ram

kumar

Bad government polices are leading to lopsided development.For every 1,000 sq ft new commercial office built, 5,000 sq ft residential area has to be constructed. This is not happening. Instead, more commercial space and retail spaces are getting developed as they bring greater profits. This, in turn, is causing property prices to rise as there is too much money chasing too few properties."

ahirman

A lot of people are trying to link falling realty prices across the world specially in US to India. Its really s to Oranges.

Real estate prices never go down in India and never will. The reason is we dont look at realty as a financial instrument with all other available investment options. Also we are more emotional with it. Demands has been always high and supply low and seller knows that wait and watch pays.

Prices will stagnate at the most before climbing up steadily again but the kind of correction we see in US market is something which is never going to happen in India.

How much long will stagnate and with what rate they will climb back will depend on the location you are in and it differs widely. For Individual sellers its wait and watch time and for builders its time to throw in some freebies to attract crowd.

kishan918

I believe house prices will go down in INDIA, only thing is going to happen little late. Here is why there are few reason
1. In india house/land prices are too high relative to the income at prsent.
2. In last 5-6 years when actually house prices got doubled, who were the buyers? 1. people returned from abroad, 2. multinational companies looking to expand in India, 3. highly paid employees, 4. IT professionals 5. There were huge loans provided by Citi, HSBC and ICICI on based on the salaries.
3. Lot of investment in real estate due to high appreciation, investors will be pulling out their money as soon as they don't see appreciations, there is already prices started going down in Bangalore, Hyderabad, Mumbai and Pune, it will spread all over the India.
4. Recently there is interest rate hike and it will continue for a while due to inflation so there could defaults possibility due to increased monthly payment.
5. I believe there is stagnation in the hiring in India and lot of multinational companies are going back because the corruption in the system and there is no good response. Second is there is not really significant improvement in roads and traffic so I believe internation people don't like to really live in India. Unless they improve infrastructure and have good working system like good traffic, good policing and good Law, I don't think India can handle the growth, the buidling is going sink if the base pilars are not strongly build to handle high rise buidling and its true to any economy. Why would I pay like half a million dollar for the same home in India when I don't get salary, surrounding neighbourhood, good raods and good traffic like USA.
Now what is happening and going to happen in next few years
Due to global slowdown
1. India is loosing business specially in IT as well as other highly paid multinationals.
2. If highly paid employees who bought flats or houses based on loans and if they lose jobs, how they are going to pay? Recently PATNI announces 400 layoff due to non-performance reason. There are lot layoff happening in private sector in INDIA. It will have the ripple effect, it will happen slowly because media is not that fast like US.
3. There is not really the shortage of land in India, India is big enough to handle 1.3B population.
4. I believe india will get the same construction companies like US and then they will compete for the open market. I think thats when the house prices are really going to go down. Because they will provide good roads, good neighbourhood, good school, good greenary, 24/7 power supply and they will build big townships. I believe by that time India might have build big roads like US and that when the villages will be converted in new modern cities, where combination of business and residencies and with security that means no more unauthorised busniesses and people. If they build like millions of houses or flats, prices are going to go down and also the material they use will be quality.
5. I think this is completely bubble and I don't see the house prices going up from here in next 10 yrs in India. It may go down.

wiseman

Ahirman said: "RE prices has never gone down in India and never will!

To that I say, Ahirman, you must be a really young chap! .

Wisdom comes with age and experience (and also the willingness to listen when other more experienced people speak and learn from historical data).

If only you did a little study before you came out with those en words, you will realise that as recently as 1995-98 RE in some parts of the country went down upto 80%!!!!! And that was mainly in the only IT boomtown in India those days - Bangalore! And there was not even the hint of a global crisis to trigger that one.

I hold the opinion that this time also RE prices will go down by as much as 80%. But alas, this time it may happen in many, many cities and even towns as these very same places have shown this huge bubble in the last 4-5 years.

Ahirman,

NEVER say NEVER,
UNLESS you are SURE!!!

cheers

arin_12

Bangalore its already falling. Even some cases developers are shutting down their door. Please verify the developer before you purchase or make any advance to them. Ultimately it is your hard earned money...

indouus

Its a long train, takes long time to come to halt and even longer to move forward. But once running at full throttle, its faster then any bus.