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Housing demand slumps: Experts call for cut in prices

September 18, 2008 14:49 IST

International property consultants have called for reduction in residential prices as demand has gone down by over 40 per cent in the last nine months.

While end-users in big cities such as Mumbai and Delhi are postponing buying houses due to a number of reasons such as unaffordable prices, rise in interest rates and increase in their monthly pay-outs among others, investors have sold off their properties to pay for losses suffered in the stock and property markets, consultants said.

"Developers must now be ready to lower their selling prices in order to revive demand. Once this happens, we will see a definite upswing in residential real estate sales again,'' said Anuj Puri, chairman and country head of property consultancy Jones Lang LaSalle Meghraj.

The Reserve Bank of India has raised repo rate, the rate at which it lends to banks, by 125 basis points in the last six months to contain inflation.  

In turn, commercial banks have raised consumer loan rates by 50-100 basis points. Thus, on an average, the monthly installment on a Rs 10-lakh loan for 20 years has risen over 50 per cent to Rs 12,740 at 14.25 per cent rate from Rs 8,060 (7.5 per cent rate) five years ago.

"While ready apartments are being sold, those under construction are not finding enough buyers,'' said Vikas Oberoi, managing director of Mumbai-based Oberoi Constructions recently.

After global investors such as Lehman Brothers and Merrill Lynch suffered huge losses in the US and others reduced their exposure in the emerging property markets including India, consultants believe foreign funds would come into the country at much lower valuations.

"If developers had a horizon of 25 funds earlier, now they will have only 10 funds. Investors would want to come in at much lower valuations. I expect nearly 20-25 per cent correction in prices around Diwali,'' said Ambar Maheshwari, director of DTZ, a global investment advisory.

Adds Puri, "The Indian real estate market is likely to underperform in the next six to 12 months. During this period, investors are well-advised to concentrate only on key listed players who are better placed to ride out the storm. Only such companies are geared to show good share performance over the longer term,'' he said.

A cross-section of property developers, consultants and brokers said enquiries from home buyers have gone down by 40 per cent over the last three months, compared to the same period last year. While developers are not advertising any price cuts, most are willing to reduce prices once the negotiations begin, according to investors.

For instance, in Gurgaon, where the prices are Rs 6,000 per sq ft, developers are settling deals at Rs 5,500-5,400 due to a sharp reduction in demand. This is apart from freebies such as free parking, waiver of stamp duty and equated monthly installments.
B S Reporter in Mumbai
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