Realty is... no takers for homes

Realty is... no takers for homes
North Bangalore Will See A Price Correction Of 10-15 Per Cent
Sujit John & Anshul Dhamija | TNN

Bangalore: Real estate prices have been sluggish for a while, and the message from leading global consultancies, financial institutions and other industry observers is that a further correction in prices is imminent. And some are putting the point across to developers bluntly.
Like KPMG executive director Jai Mavani, who says that the buyers by and large have disappeared from the market. “So the prudent thing for developers to do is to drop prices, which can persuade buyers to come back to the market. It is better that they do it quickly, for the alternative could be a systemic bleed that could badly hurt the industry. Prices are high compared to what people are prepared to pay. And they believe there will be a correction, so everybody’s waiting.’’
Many smaller developers are seen to have already dropped prices by 10%-15% in many locations. Some are keeping the price constant, but offering a number of freebies like a car or furniture or a foreign trip, or a free parking slot.
But analysts believe more price cuts are in the offing. A recently released report by the financial institution Credit Suisse says that despite developers’ assertions that prices remain at all time highs, a deeper look shows that all is not well with the sector. “Recent land auctions, discounts and freebies being offered by developers, increased number of purchase cancellations by buyers and high volatility in the market are clear indications of an impending price correction,’’ says the report.
Significant reduction in mortgage disbursals and stamp duty/registration fee collections also indicate a slowing demand. Developers are finding it increasingly difficult to raise funds, and distress sales have already begun. “We believe that d eve l o p e r s would be best served to bite the bullet and cut prices by 20%-25%, rather than prolonging the pain by trying to hold prices at unsustainable levels,’’ says the Credit Suisse report.
Auctions, that previously surpassed all price expectations, have now started recording winning bids barely higher than the reserve prices set for the land, adds the report. Things have gone really bad in the last couple of quarters. For instance, land auction in Mumbai in March 2008, in which the Mumbai Metropolitan Regional Development Authority (MMRDA) received no bids for two of the five properties on offer and only one bid for a third. Credit Suisse also notes that resale flats in various projects under construction are on offer at prices lower than those offered by the developers. “An example of this is the Gurgaon market, where several projects are on offer at discounts to developers’ adve r t i s e d prices that are as high as 30%. This, too, appears to support our thesis that developers are artificially h o l d i n g vanahalli), Kanakapura Road and Hennur. Whitefield prices have more or less stabilised, though there could be pockets where supply still outstrips demand,’’ says a leading city-based developer who requested anonymity.
Buyers have come to believe that the market will see a further drop. “They request consultants to let them know when the price is down by 20%-30%. Even with discounts upto 20% plus freebies, there are no takers now,’’ adds Naresh.
The craze for buying quickly is completely gone, says Amit Bagaria, chairman, Asipac, a realty services and marketing firm. “Buyers are doing a complete duediligence. They ask a lot of questions like how the project has been financed, credentials of the developers, their previous/other projects and how sure are they about the date of completion. Demand still exists but the unrealistic prices is what is shying away buyers,’’ he says. KPMG’s Mavani also warns developers that bank will not be there to bail-out them, unlike durprices at the expense of volumes,’’ the institution says. Bangalore’s builders too admit that the situation is not good. “Nobody is able to sell at the moment. I get at least 15 calls a week from buyers that are just requests,’’ says Geetha Naresh, a real estate consultant. “There has been a significant slowdown in the market. And with the current scenario, the city will see a 10% drop in prices especially in areas such as north Bangalore (Yelahanka, Deing the crash of 2001-03. “There has been a huge growth in the number of developers and developments. Also the liquidity scenario has taken a ‘U’ turn. Therefore, releasing the stock could be the best option now rather than holding on to prices,’’ adds Bagaria.