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Home prices may dive with Sensex

If you have been waiting for your dream house, wait a bit longer, write Gurbir Singh and Suprotip Ghosh.

business Updated: Mar 06, 2007 23:04 IST

If you have been waiting for your dream house, wait a bit longer. You could be rewarded with more affordable prices as the property price spiral might just take a breather in tandem with the stock market.

Over the last two years, a major driver for sky-rocketing realty prices was the stock market spillover. Rich investors like diamond merchants, too, chose to invest in the property market as the perception was it gave the best returns possible.

"Surplus funds from the stock market have been coming into realty as it gives good spreads and the option to cash out too," said Hiren Patel, a promoter of Atithi Developers, a large suburban developer.

With the stock market in a "a 16 per cent, 2,300 point plunge" over the past month, stock market investors have been on the run. The decrease in investor wealth has meant that market gains, which were converted to cash for reinvestment in property, have been sucked out of the system, thereby reducing demand in the realty market.

"There is a noticeable slowdown of stock market money coming into realty. Investors are busy cutting their losses and managing their portfolios," said Akshaya Kumar, a property consultant and former head of realty broking firm Colliers Jardine. "Prices will soften, though over a longer 3-4 month period, as the impact on rising interest rates sinks in," Kumar predicted.

What is the extent of co-relation between the stock market and property market? "In short periods, or periods of extreme volatility, there seems to be little correlation between the two markets," said Milind Barve, MD, HDFC AMC. However, in a sustained bull market, the sentiment, as well as the ability of investors, climbs.

"Real estate prices follow the stock market with a time lag," said Deven Choksey, MD, KR Choksey Securities. This had not happened so far, Choksey added.

Anticipating instability in the property market, some developers have already initiated defensive measures. "We have stopped taking bookings from investors. We are only selling to end-users. Investors are fickle and disappear when the market rumbles. End-users stay on," said Atithi's Hiren Patel.

Builders though, have a different view on price movements. "There is resistance to further price increases from home buyers and lessees of office property, but developers have no respite from the spiralling cost of land," said Subodh Runwal, a director of the Runwal Group of developers.

Giving an example, Runwal said an industrial unit in the Mumbai's eastern Vikhroli suburb was asking for Rs 10,000 per square foot. "Why should I pay Rs 10,000 per sq ft for land when I can buy a house at Rs 4,000 a sq ft?" he asked.

Land price spiral!

Despite talk of correction, the price of land has not softened. Gujarat Ambuja, which has put 2 acres of prime suburban land at CST Road, Kalina, Mumbai, on sale through brokers Knight Frank, is asking for Rs 30,000 a square foot, an asking price of Rs 257 crore. There is no deal yet, but there is no price cut either.

In developed property, where supply is restricted as in Mumbai's island city, it is still a sellers' market. Bombay Dyeing's Spring Mills project, at the not too hot locality of Wadala opened a year ago at around Rs 12,000 a sq ft. Customers enquiring today are being quoted a rate of Rs 30,000 a sq ft and are being asked to buy a whole floor!