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This article was first published 13 years ago

Home sales take a big knock, set to worsen

Last updated on: September 12, 2011 10:28 IST


Raghavendra Kamath & Somasroy Chakraborty in Mumbai

Anil Singhal, a property consultant based in Delhi's Connaught Place, says he has enough free time these days. Reason: business has dropped 60 per cent from eight to 10 home sales deals a month at the beginning of this year to just three to four.

"Though prices have been stagnant in most areas, not many people want to buy now, as they are buying on EMIs (equated monthly instalments) and home loan rates have gone up sharply. More important, the fear factor has come back and the situation is getting worse each passing day," he says.

The Reserve Bank of India has increased interest rates 11 times since March 2010 to curb high inflation, prompting home loan finance companies and banks to increase rates by 250-300 basis points (100 bps equals one per cent).

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Home sales take a big knock, set to worsen


Singhal's concerns are shared by DLF, the country's largest developer.

"Increasing economic uncertainty, rising interest rates and EMIs and an overall gloomy situation are making home buyers hesitant," said Rajeev Talwar, group executive director.

It is not only the National Capital Region. Mumbai, the country's other major property market, is seeing a similar drop.

"Sales are down 60 to 70 per cent. This is mainly because home buyers are not confident of the progress of property projects due to delays in approvals, regulatory issues and so on. Second, the sentiment is bad," said Pujit Aggarwal, managing director of Mumbai-based Orbit Corporation.

"And, since home loan rates are high, buyers are delaying purchases, hoping that rates will come down in the next six to nine months."

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Home sales take a big knock, set to worsen


Property registration data also show a decline. In recent months, Mumbai has seen a 30 per cent dip in the number, compared to the same month last year.

Prices

Bankers said apart from rising loan rates, high property prices are also responsible for the decline.

"On home and car sales, clearly, there is a slowdown, an intended slowdown that we wanted, arising out of the policy intervention.

With the rise of property prices and interest rates together, there definitely is a slower increase in new home purchases. There is an increase but the rate of growth is slower," said Chanda Kochhar, managing director and chief executive, ICICI Bank.

A banker who did not want to be named said people had been buying homes even at 15-16 per cent rates.

"Most people opt for floating rates for home loans, which are spread over 15-20 years. As a result, even if the rates are high now, these would get adjusted over the long term. It is the high property prices that are affecting home loan demand."

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Home sales take a big knock, set to worsen


After softening a bit, home prices have risen 50 per cent in cities such as Mumbai since the September quarter of 2009, according to Jones Lang LaSalle, a property consultant.

According to Anuj Puri, chairman of property consultant JLL India, homes priced above Rs 1 crore (Rs 10 million) are seeing a significant reduction in sales, due to the dampening of the overall economic sentiment and a general trend of over-pricing.

The reduced availability of funding to the sector is going to impact the execution capability of developers focusing exclusively on luxury homes and not offering a diverse mix of typologies in their projects, Puri said.

"We are looking at a scenario wherein luxury home developers will be prevailed upon to negotiate on their current pricing."

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Home sales take a big knock, set to worsen


However, developers, bankers and consultants say things would improve in the coming months, when the festive season kicks in.

"With the easing of rates and inflation, and the festive season, we believe things will improve," said Aggarwal of Orbit.

Added Pranay Vakil, chairman of Knight Frank India: "I think it (festive season) might see an improvement in sales, not in prices."

"In many parts of the country this is the shradh period, when people don't buy houses and make fresh investments. We are hopeful demand will recover post October," said a head of retail assets at a foreign bank. That's what Singhal is banking on.