Business - India;Home prices to fall next year

Rajesh Unnikrishnan

MUMBAI: Potential home buyers who have been deferring their purchase decisions, may have to wait till April-May to get a good deal.

The ripples of the ongoing financial crunch, coupled with mounting pressure from various other circles, will peak between January and March. That’s when many developers will be forced to sell the unsold stock at a much cheap price, feel industry experts.

“The signals are very much visible. Developers are already offering lots of freebies. I feel, they will hold on to prices till the end of the festive season. If sales are not happening in the current quarter, the Jan-March quarter will see a price crash in some pockets, and in the first quarter of the next fiscal, developers will be forced to sell homes at a much lower rate as their loan repaying capacity will be under challenge,” said Anuj Puri, chairman & country head of Jones Lang Lasalle Meghraj.

He added that in the current market scenario, if developers want to bring some cash flow into their company, that will happen only by selling their residential and commercial properties. “All other routes are drying up,” he said.

India’s property market has been among the hardest hit by the global financial turmoil as high interest rates and gloomy economic prospects have driven out buyers and squeezed funds for real estate developers.

Through this year, property prices have already declined more than 10-20%, though in cities like Mumbai and Delhi, prices are still too high for a middle class consumer. Developers like Orbit Corporation has already cut prices by 20% from Rs 26,000 to Rs 21,000 at Parel in Mumbai.

Broking firm Edelweiss Securities in its recent report on real estate said property prices are likely to decline by 10% in the current calendar and another 15% by the end of the current financial year.

“I feel, by the end of the year, developers will feel the real pinch of the current financial crisis. They have to cut prices to keep the wheel rolling. It would happen early next year,” said Pranay Vaikil, chairman of Knight Frank India.

Industry official said, though the rate cut by RBI will improve the confidence level of consumers, it will not reverse the ongoing trend in the market as most buyers will prefer to wait and watch.

“While the repo rate cut signals the reversal of the interest rate cycle, it might be too early to conclude on its impact on the real estate. With liquidity remaining tight for India Inc, home loans rates might see some softening by select players, as the uptake at current rates for residential borrowers is dwindling. Such a move could revive the demand in residential real estate market, that has seen sudden drop in recent times,” DTZ director Ambar Maheshwari said.

According to industry officials, many realty companies were banking on the stock market and foreign investors for new projects. As those sources dry up with the global meltdown, they will be forced to cash out, even if it means selling existing stock at a lower price.

“Those with a strong financial background would still be able to hold on to the inventory but the ones with leveraged positions will give in to the pressure. The picture would be much clearer by the end of the current year. This period beginning from late December ’08 to March ’09 could provide a good buying opportunity for homebuyers,” said Deloitte Haskins Sells partner Jayesh Kariya.

Developers are admitting that there aren’t too many transactions taking place. The festival season between Dusshera and Diwali has traditionally been the time when most families choose to move into their new homes. “Though enquiry levels are increasing, it is not translating to actual deals. Consumers are still hesitant,” said a Mumbai-based developer.

(With inputs from Supriya Verma)