Despite robust demand, stable home loan rates and positive investment sentiment, sales of housing units declined by 40 per cent in major cities due to inflated rates in the first half of 2010- 11, said a latest survey by the Associated Chambers of Commerce and Industry of India ( Assocham).
"According to property dealers of seven metro cities ( Delhi, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad and Pune), the sale of flats has gone down in the first half of 2010- 11 by over 40 per cent as compared to the last year," the survey says.
And the reason cited for such sluggish sales is the escalated rates of housing units.
According to the report, developers increased the prices of their existing projects and the rates of newly launched projects are significantly higher than the previous ones.
The survey says, two- bedroom, hall and kitchen (two BHK) apartments costing Rs 30 lakh is now selling for Rs 45 lakh, which is beyond the reach of the middle class.
According to the survey, high input cost is the reason for the inflated rates.
"The rise in prices of property is backed by the prices of steel and cement. In the last six months, the price of steel has gone up by 30 per cent and cement prices by 15 per cent," it adds. Steel and cement constitutes nearly 35 per cent of the construction cost, which escalates the cost of the project by 10 to 12 per cent.
Another reason for the steep rise in price is the speculative bubble in the real estate sector, which kicked off as prices started escalating.
"Speculators start buying properties and start selling them at higher prices within months to make a quick profit. The demand for property increases due to this reason. This causes prices to rise to stratospheric levels," the survey says.
According to it, despite the big names in the real estate sector coming up with new projects at affordable prices, demand for such flats remained sluggish among customers due to location disadvantage.
The survey also reveals that majority of the prime projects are coming up in the outskirts of the National Capital Region (NCR), where there is no proper connectivity.
"However, the second half of 2010-11 is expected to be positive for the real estate sector.
Due to revival in the real estate activities driven by infrastructure growth, it can in accelerate both the residential as well as commercial segments," D. S. Rawat, secretary- general, Assocham, said.
Investments in the real estate sector have gone up by 37 per cent in the first half of 2010- 11.
The continuation of the teaser home loan rates is likely to act as a positive in reviving demand in the real estate sector. And though the festival season is round the corner, banks have no plans to raise home loan rates, at least in the next few months.
The survey was conducted across 25 major real estate developers and 275 real estate professionals, including investors, property company representatives, lenders, brokers and consultants, spread across seven major cities.
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