Further Price Cuts Unlikely- Developers

July 6, 2009	(Be the first to rate this story!)  Loading ...
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Riding high on the return of demand and rising sales in housing, several real estate developers are stopping discounts, have stalled further price cuts, increased prices in budget housing projects launched recently, and are returning to revive high-end projects. Property experts said they do not expect this to be reflective of demand returning strongly to the housing market and think it is just that some developers are testing the waters with higher prices.

“Prices are likely to inch upwards in the coming months in some markets,” said Kumar Gera, chairman of Confederation of Real Estate Developer’s Association of India (Credai), an industry lobby. “Even if there is an increase in prices, it will still be far less than the high prices had touched during the peak.” While the economic slowdown saw prices crashing by 25-30% in most markets, the current price rise is only 10-15%, added Gera. In the last two months, while some developers such as Unitech Ltd, have increased prices marginally, some others—especially in Mumbai–have pushed up prices by up to 10-15%. Unitech, which sold 4 million sq. ft of residential apartments in the last three months, has increased prices in two of its affordable housing projects in Gurgaon by Rs50 per sq. ft, a 2% increase.

Soon after launching its affordable housing projects, in June, Mumbai-based developer Lodha Group launched a luxury residential project in suburban Mumbai. The builder said the introductory price for 27 apartments is Rs5,994 per sq. ft and would be increased later. At today’s price of Rs6,210 a sq. ft, an 1,800 sq. ft, three-bedroom apartment would cost about Rs1 crore. Lodha has increased prices in two of its affordable projects by 10-15%, too. “We have marginally increased prices every month for these projects since their launch in March,” said director Abhisheck Lodha. “But the market is in a good spot and the response is still good.”

Bangalore-based firm Brigade Enterprises Ltd, which had cut prices by 15% in April, has increased them by 3-5% since June. From July, prices would go up at regular intervals, it said. “We are hoping that in one year’s time, prices will be back to the peak levels of 2007-08,” said chairman and managing director M.R. Jaishanker, who said margins were badly hit from doling out discounts and cutting prices in the last few months. Still, discounts through brokers have not yet disappeared from the market. Developers have increased the commission slabs offered to brokers from 3% maximum to 5-6%, says Sharma. Brokers in turn are offering a discount of 1.5-2% on the price of the apartment to buyers, he said.

“These are the same measures developers and brokers adopted to create a price bubble during the boom years. Demand has not risen to an extent that it can fuel a price increase,” said S.G. Maheshwari, a Mumbai-based property consultant. Even markets such as Navi Mumbai, where historically, pricing has been more conservative than Mumbai and its suburbs, has seen a rise between 10% and 15%. “It is pure sentiment that is driving the real estate market,” says Aditi Vijayakar, executive director, residential, Cushman and Wakefield, a real estate consultancy firm. “A lot of developers are showing positivity in the market by increasing prices notionally.”

Vijayakar does not think that from here prices will only increase. “Right now it is a fairly confused market, she said. “Rates have more or less bottomed out…but there needs to be substantial amount of sales before buyers are convinced price increases are justified. I think the real estate market would be flat for some time.” Luxury properties, which have seen little movement in the last six months, are also seeing a rise in prices. “Not too many sales are happening, only enquiries have increased. Developers are making the most of that,” said a south Mumbai developer. Orbit Corp. Ltd, which primarily develops luxury properties, has increased prices by Rs5,000 per sq. ft for apartments at a project on Napean Sea Road in South Mumbai, that cost Rs40,000 per sq. ft. Pujit Aggarwal, Orbit managing director, was not available for comment as he was travelling.

“I don’t think prices will go up,” says Anshuman Magazine, managing director, CB Richard Ellis South Asia Pvt. Ltd, a firm of realty consultants. Developers, who always try to maximize selling prices, are only testing the market to see if homebuyers will accept a higher price, he said. At least one home buyer seemed to agree. Software consultant Dinesh S. and his wife, interested in an east Bangalore apartment, were told by a broker in June that the sticker price of Rs2,200 a sq. ft on the property would go up by at least 15%.

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