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Real-estate market sees a sharp decline

india Updated: May 18, 2007 04:20 IST
Gurbir Singh
Gurbir Singh
Hindustan Times
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India’s once-buoyant real-estate market has gone into a deep freeze with more than a 50 per cent drop in actual transactions over the last two months, developers and real-estate analysts have said.

For the first time in three years some developers have dropped rates to bolster demand. A nation-wide survey reports a drop of between 5 to 10 per cent in rates across edge suburbs like Kharghar, in Navi Mumbai, Greater Noida in the National Capital Region and Bangalore’s Hosur Road.

Developers on the fringes of the big cities have found it hard to hold the price line. Cheaper land also allows them greater freedom in fixing profit margins. However, within the metropolitan cities, developers have withstood the plunge in sales and held their price lines. In prime locations and exclusive buildings, the price spiral is intact.

“Small developers who cannot hold out anymore have cut their rates by 8 to 10 per cent so that they get buyers,” said Vijay Wadhwa, chief promoter of the Mumbai-based Rs 2,000-crore Wadhwa Group.

He explained how Kharghar on Navi Mumbai’s edges is reporting a price decline up to 20 per cent, but there have been no price cuts on prime land, like the eight-lane coastal promenade of Palm Beach Road or land leading to the proposed new international airport.

In Delhi, Stanchart’s Regional Manager-Home Assist and Home Loans, Vikram Dhamija, said there had been a 50 per cent fall in transactions since mid-February.

“Potential buyers have backed off because of confusion over zoning norms and FAR (the floor area ratio or FSI) in Delhi’s Master Plan and higher interest rates for home loans,” Dhamija said.

“Developers like Parsvnath and MGF have cut rates by 15-20 percent in Greater Noida. On Hosur Road (in Bangalore), average rates are down from Rs 2,700 a sq ft to Rs 2,300 a sq ft,” said Shashi Kumar, CFO of the realty fund IndiaReits.

But don’t expect a drop in prices of high-end properties in mid-town locations. That’s because there aren’t enough upscale properties both in commercial and residential segments to fuel continuing demand.

“South Mumbai’s Cuffe Parade residential properties are not coming down from the Rs 25,000-30,000 per sq ft range. The asking rate for the new, swanky 32-story DSK Durgamata Towers is around Rs 35,000 a sq ft,” said south Mumbai broker Prakash Kanuga. “However, there are hardly any transactions at these levels.”

The slowdown is beginning to hit loan disbursals of banks and home-finance companies.

ICICI Bank’s growth in home-loan disbursals has fallen from 32 per cent to around 20 per cent, while the State Bank of India said it would not be able to sustain its current growth rate of 25-27 per cent and expects it to settle around 20 per cent. In the upscale property market of south Mumbai, the freeze in sales has ironically given the leasing market a push.