Realty dreams

Ah! There’s hope for the world. The laws of physics—the one on gravity, in particular—which the Indian stock and real estate markets seemed immune to, are catching up at last with these two deviants. The stock markets, and their downward spiral, have hogged reams of newsprint and hours of airtime, but less well recorded is the fact that property prices, too, are following suit, albeit much more gently.

In Bangalore, Kochi, Hyderabad, Noida and Gurgaon, which saw heady real estate growth—both in demand and prices—in recent times, prices have fallen 5-10 per cent over the last quarter. In Mumbai and Pune, sales have failed to take off even during the festival season, and though prices have remained steady, property registrations in the Mumbai have dropped by about 8 per cent during this period, indicating that fewer buyers are going ahead with purchases. Only Chennai and Kolkata seem to have escaped this trend, but then, it was these two cities that had also trailed the rest of the country when realty action was taking on the shape of a frenzy.

Official data from the banking sector corroborates the overall trend. Home loan volumes have declined 39 per cent in the first nine months of the current financial year, compared to the corresponding period last year to Rs 32,424 crore. And though a more detailed break-up is not available yet, the consensus in the property market is that this trend has gathered pace in the second half of 2007-08. “Though property prices in prime locations in the metros have not yet started falling, sales volumes have definitely been depressed recently,” says Kunal Banerjee, President (Marketing and Corporate Communication), Ansal API.

All the people BT spoke to for this report say the high interest rates are keeping serious buyers and end-users away. Ratings firm Standard & Poor’s, in a recent report, has pointed out that since the fortunes of the Indian property market is closely linked to the performance of the capital market, the recent bloodbath on the stock exchanges could prolong this trend.

Within reach Real estate prices have started showing the first signs of reversing the rising trend. Mumbai: Prices steady; registrations down Delhi: Prices down 5-10 per cent in NCR Bangalore: Prices down 5-10 per cent Chennai: No change Kolkata: No change Hyderabad: Prices down 5-10 per cent

This fact is corroborated by Banerjee. “Speculators are not betting as aggressively on real estate now as the sector no longer offers potential for quick and high returns. The market is now at the mercy of end-users.” And such buyers are biding their time. Adds Banerjee: “This trend will continue to gain pace across India unless the Reserve Bank of India (RBI) intervenes and cuts interest rates to boost demand.” HDFC has cut its PLR by 25 basis points and some banks are expected to follow its lead, but this may be too small a reduction to affect buyer sentiment.

Big time property developers say they’re trying to counter the trend by offering add-ons and freebies. “Rising interest rates have affected the sentiment of home buyers during the last quarter. But we are trying to come up with innovative projects to attract potential buyers,” said Pradeep Jain, Chairman, Parsvnath Developers. Projects like Jaypee Greens (Greater Noida), Aquapolis (Ghaziabad), Unitech Grande (Gurgaon), Parsvnath Gardenia (Noida) and Sushant Golf City in Lucknow are attempting to attract buyers by offering aspirational lifestyles built around themes like golf and “country living within a city”.

So, is this a good time for the middle class buyer to stage a comeback? “While prices of branded properties still continue to be up, many in the suburbs of Tier II cities are definitely down to more affordable levels,” says Banerjee. Many large realtors with deep pockets are holding back from announcing price cuts, but if the government does not announce any incentives for the sector in the forthcoming Budget and the RBI refrains from cutting rates (as it has done, the last time as recently as in the last week of Janury), then they, too, will have few options but to reduce prices to appease the market.

And that, many feel, will be the signal for end users to return to the market. What goes up must come down, after all.