Developers Feeling the Heat of Falling Property Prices

May 16, 2007	(2 votes, average: 4 out of 5)  Loading ...
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With real estate prices going downside after a long bull run and consumers postponing property buying decisions, developers could see their profit margins shriveling by half, says the data revealed by a new report by multinational broking firm First Global.

The report also forecasts a 15% drop in residential properties in India, which is in line with what industry watchers say. The profit margins can slip to 22% in 2007 because of soaring interest rates on home loans whereas the previous years had brought a merry-time for developers as they witness a jump from about 13% to about 40%.

Also, investors are putting themselves off from the realty sector thereby reducing the number of buyers and increasing the pool of sellers, say Hitesh Kuvelkar, associate director (research) for First Global.

Residential property makes for around 75% of the property market and is an area of interest for most builders. The expansion plans of the developers can lead to an oversupply of houses in some markets.  As many as 10 developers are known to have lined up to build about nine times of what they built in the past by 2011, adds report.

Property analysis carried out by Knight Frank India reports a fall of 5-8% in residential property prices in some major cities. Prices had shown an appreciation of 30% in a year and can drop by another 5%.

Property prices are believed to be falling in the suburbs where a large supply of homes is coming up.  Small builders have already been hurt by the slow pace as they were expecting to fund their real estate projects by pre-selling houses, says Anshuman Magazine, managing director of CB Richard Ellis South Asia.

News Published Under:   Real Estate Developers |

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