As house rates rise, hopes fall
Realty prices in Mumbai are on the upswing again. In fact, in many localities, they have even surpassed their mid-2008 peak, reports Naresh Kamath.mumbai Updated: Mar 29, 2010 23:05 IST
Boosted by the government’s economic stimulus, builders are raising prices, putting that dream home once again just out of reach for most Mumbaiites.
Take the case of Kandivli, where houses are now commanding Rs 8,500 per square foot. At the peak in 2008, Kalpataru had priced a project there at Rs 7,900 per square foot while Bhoomi Builders was asking for Rs 7,500.
It’s a similar story in Borivli (W), where prices have risen to Rs 8,500 per square foot from Rs 7,500 in 2008. Malad and Goregaon are now commanding Rs 8,000 per square foot from the 2008 high of Rs 6,800. Kurla properties are going for Rs 8,000 per square foot from Rs 6,500 in 2008. Lalbaug and Parel, which commanded Rs 9,000 per square foot in 2008, are being quoted at Rs 11,000. In Khar, the rate is Rs 20,000 per square foot from Rs 19,000 in 2008.
Builders attributed it to higher demand. “Prices are related to demand. Every builder wants to sell off his flats,” said Mofatraj Munot, chairman, Kalpataru Group.
The Builders Association of India (BAI) justified the hike, pointing out that construction was a high-risk business. “Just as profits are high, so are losses. We went through a rough patch over the last two years, so there is nothing wrong with the increase,” said Anand Gupta, BAI secretary.
Abis Rizvi, CEO of Rizvi Builders, said realty is ruled by sentiment. “Currently, the sentiment is positive, so there is an upswing,” he said.
However, real estate experts say prices are being exaggerated. In 2007-08, builders jacked up prices to attract private equity. Now, the experts said, the focus is on stock market listings.
Valuation of construction firms is directly related to property prices. The higher the prices, the greater the valuation.
“The builders are only interested in securing high valuations for their companies through initial public offerings (IPOs). Most of them are not interested in sales. This is why they are keeping rates high,” said Pankaj Kapoor, CEO, Liases Foras, a leading real estate research firm.
In the next few months, at least 15 realty firms — including the Lodhas, Oberois, Rahejas and Kumar Builders — are launching IPOs, while DB Realty and Godrej have already done so.
Gupta refuted the IPO theory, saying investors are smart enough to spot any attempt to inflate valuations. “Investors study the market before investing in stocks. They won’t buy just because prices are high,” he said. He predicted that prices have corrected enough and that they would rise for the next two years.
Knight Frank, another real estate consultancy, said the next few months are crucial for the industry. “Sales are bound to stagnate, pushing prices down in April-March,” said Pranay Vakil, chairman, Knight Frank India Ltd.
He said it was the pent up demand — buyers, including non-resident Indians, who had deferred purchases but are now taking the plunge — that was fuelling the boom.