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Slowdown blues

The residential realty market is in the midst of a downturn. In spite of a steep rise in costs of inputs such as cement and steel, prices are significantly down from their highs.

Print Edition: September 7, 2008

There are unmistakable signs now that the residential realty market is slowing down sharply. In spite of a steep rise in costs of inputs such as cement and steel, prices are significantly down from their highs. A study of the residential real estate market across seven cities in June and July 2008, by real estate consultancy and marketing company Asipac Group, reveals a broad slowdown particularly in the nonluxury homes segment.

Hyderabad has reported the severest pain. Apartment sales across geographies and price segments are down almost 60 per cent compared to the last year. Projects launched with fanfare last year have seen a spate of cancellations.

Realty market slowing down?
Realty market slowing down?
Mid-segment homes in Mumbai, priced at Rs 1.2-3 crore, have also seen one of biggest price drops. In the sub-luxury segment (Rs15,000-20,000 per sq. ft), prices were stable, with a few projects reporting small increases of 5-8 per cent per annum. The upper midmarket segment (Rs 9,000-15,000 per sq. ft) saw swings of -10 per cent to +10 per cent in different micro markets. Cancellations, hitherto very rare in Mumbai, have also started taking place.

In the National Capital Region, average prices are down 20-30 per cent compared to the peaks of 2006. Average volumes for the sixmonth period since January were also down 25-65 per cent compared to 2006.

Bangalore would probably have been no different from the rest of India but for the new international airport, which has altered its market dynamics. Upcoming projects on either side of Bellary Road, which leads to the airport, are quoting at higher prices. The rest of the city, especially areas close to the IT corridor, such as Whitefield and Marathalli, have flats quoting 10-18 per cent lower than their 2006 peaks. Some projects even have reported negative sales—where cancellations are higher than sales.

The Asipac report shows the market in Chennai, too, is feeling the heat. Asipac Chairman and CEO Amit Bagaria, commenting on the study, warns: “Developers need to broaden their product offerings soon; else, they run the risk of losses and even bankruptcy, like in 1996-97.” Clearly, this slowdown is for real and things are unlikely to change overnight.

K. R. Balasubramanyam

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