Real Estate Developers hamstrung by the interest rate hikes and high cost of construction
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Developers see no fireworks this year

The festive season is unlikely to bring cheer to the country's real estate sector as high home prices and rising interest rates are expected to keep sales growth under pressure.

  • New Delhi,  September 29, 2011  
  • |  
  • UPDATED   12:51 IST

The festive season is unlikely to bring cheer to the country's real estate sector as high home prices and rising interest rates are expected to keep sales growth under pressure.

"Compared to last year, this year the festival sales will remain moderate as high interest rates, steep rise in home prices and negative economic sentiments have already dampened demand," Anshuman Magazine, South Asia chairman and managing director (CMD), CB Richard Ellis, said.

"The overall sentiment is gloomy and sales will remain subdued especially in metros where the valuations are very high. Volumes are expected to be lower than last year," Magazine added. According to property brokers, general queries from customers have dropped considerably.

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"We were expecting sales to pick up around the festive season. But this year there is hardly any excitement in the market. Buying queries have dropped by almost 40 per cent compared to last year," a senior executive at Axiom Estates, an international property brokerage firm, said.

"The drop in sales volume is seen across the country. However, smaller cities are performing better than the metros. Compared to last year, sales in Delhi and Mumbai are very disappointing. We expect volume will pick up next week," he added.

From the realtors' side there are no exciting cash discount offers to lure the customers. Developers say they are hamstrung by the interest rate hikes and high cost of construction, which are already keeping their margins under pressure.

The few discount offers that are doing the rounds of the market pertain to the luxury offerings. For the mid-segment, realtors have rolled out the less interesting lucky draws. "There's been a series of bad news for the realty sector.

The frequent interest rate hikes have made the cost of credit very expensive for the developers and at the same time it is keeping customers at bay. Though there is huge demand, people are delaying purchases," a senior executive at Hiranandani Developers said.

"The cost of construction has gone up much due to the steep rise in land price, building material and labour cost. Margins are already under huge pressure. So, there is hardly any scope for any big ticket discounts this season," he added.

Builders are compensating it with increased advertisement budgets. According to ad agencies, the ad spent of realtors has gone up by 20-25 per cent this year. For instance, Amrapali Developers plans to triple its ad budget to Rs 3 crore while rival Raheja Developers is planning to raise its ad spend threefold compared to last year.

Courtesy: Mail Today