Realtors may cut prices as rates stay firm

Were you planning to buy a home and felt disappointed with the Reserve Bank of India's (RBI's) decision not to cut interest rates on home loans? Well, there could be a silver lining.

Realtors, already reeling under pressure due to falling sales and high interest rates, may cut residential property prices, especially in the metros, to lower their carrying costs.

The industry has already expressed its disappointment with the RBI's decision to maintain status quo on interest rates. "The cost of funding of real estate is very high and developers expected the RBI to come out with a positive policy and facilitate drastic reduction in interest rates," said Lalit Jain, president of CREDAI, the association of real estate developers. "We are disappointed with this stingy approach of the RBI."

Property sales in major cities have declined majorly in recent times. In Mumbai, sales have fallen 25% since last year.

With rising cash flow issues, private equity (PE) provided some interim relief to developers. However, that option has also dried up lately with PE players taking a cautious stance on the real estate sector. PE investments in real estate declined by 15% in the first nine months of 2012  against the same period last year, according to a study by real estate consultants Cushman & Wakefield.

"Prices in residential real estate would only come down when developers would have no other ways of funding," said Pankaj Kapoor, managing director, Liases Foras. "Prices in residential estate have stagnated especially in Mumbai and the National Capital Region in the last 18 months."

"In the current scenario you would see many developers slashing prices in one form or another in the coming months," said chief financial officer of a BSE-listed company.

"There is a serious issue of cash flows for most developers and unless there is a boom in the economy or substantial price cuts, cash flows are a big concern."


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