Real Estate News - Home prices begin to pinch less on high loan rates (India)

MUMBAI: The housing market in India is witnessing a fall in sales and prices. This is on the back of exorbitant prices and higher interest rates that have cut into demand in the past several months, industry experts said.

Developers are now hoping for a boost from Reserve Bank of India in the form of a rate cut, but are keeping their fingers crossed. Though under pressure to effect such a cut due to fears of a general slowdown and bearish stock markets, RBI governor YV Reddy has repeatedly voiced concerns over a real estate bubble.

Newly-released RBI data showed that offtake of home loans in April-November 2007 fell 39% to Rs 32,424 crore from a year ago. Project loans to developers also eased by a fourth to Rs 12,563 crore.

“Sales volumes failed to take off during the past few months across India and the trend will continue in the coming months as the stock market remains volatile. However, a cut in interest rates can change the trend,” chairman of consultants Knight Frank India, Pranay Vakil, told ET.

Cities like Bangalore, Kochi, Hyderabad, Noida and Gurgaon, which have seen heady growth in the real estate market in the past few years, are now seeing prices fall between 5% and 10%. In Mumbai and Pune, sales have failed to take off even during the festive season, but prices are holding steady. Similarly, there has been no appreciable fall in Chennai, where speculation is far less than in other cities.

Developers say they’re trying all means to renew buyer interest. “Increase in interest rates has affected the sentiments of home buyers during the previous quarter. But developers like us have come out with innovative schemes to attract potential home buyers. Our sales during the quarter were good,” Parsvnath Developers chairman Pradeep Jain said.

Figures available with ET show property registrations (across segments) in the Mumbai market have come down to 12,903 in November from 14,161 in the same month in 2006. Registrations were down in December too, at 14,798. In Thane, the registrations have fallen by about 700 to 16,736 in November 2007 and by about 500 in December.

The home market has been among the most expensive of India’s various asset markets, touching new highs over the past two years. Home prices surged over 200% in 2007. To curb the trend, RBI raised cash balance requirements four times and sucked out cash from the system.

In the past two years, real estate developers have raised over $25 billion. “Currently, the developers are sitting on huge cash reserves which they have raised through various routes. Their hold-on power is high. Established developers are unlikely to cut rates immediately. Only a interest rate cut will trigger the sales,” S Srinivasan, CEO of Kotak Realty, said.

According to property consulting major Cushman & Wakefield, primary residential sales in Bangalore have dropped by 15-30% across micro markets over the past one year. Areas like Kanakpura Road (in the south) & Whitefield (the IT suburb in the east), witnessed a steeper dip.

“This change occurred at a time when investors had started considering tier II cities such as Coimbatore, Cochin, Hyderabad and Mysore that promised higher returns,” said Sanjay Dutt, joint managing director, India, Cushman & Wakefield.

Chennai has been relatively more stable. “The price is determined by end users and speculation is minimal. However, there is a slow down in buying activity in the suburban and peripheral areas where developers have outpriced their projects,” said Sanjay Chugh, associate director of Jones Lang Lasalle Meghraj.

In Kochi, industry representatives admitted that the first signs of a correction in real estate prices have started appearing at least in the lower segments. Mathen L Chackola, former president, Kerala Builders Forum, said there are reports that some small players in the industry operating at the budget segment are considering rate revision.

However, an industry spokesman, who did not want to be quoted, said that even the bigger players have started dropping rates. “But they cannot come down beyond a point since the scale and size of their projects are big,” said an official.

(With inputs from Jayashree Bhosale in Pune, D Govardan in Chennai, S Sanandakumar in Kochi and M Rochan in Bangalore.)

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