Realty prices set for big fall next quarter- Business News

Realty prices set for big fall

Expert says the real estate market, witnessing a big drop in sales and a consequent cash crunch for realtors, is likely to see a sharp decline in prices during the January-March quarter.

  • New Delhi,  November 19, 2011  
  • |  
  • UPDATED   14:17 IST

The real estate market, witnessing a big drop in sales and a consequent cash crunch for realtors, is likely to see a sharp decline in prices during the January-March quarter, according to property experts.

"The realty market is over-heated at present. We expect prices to come down by at least 25 per cent by the next quarter," Sachin Sandhir, managing director of Royal Institution of Chartered Surveyors (RICS), South East Asia, said. "Home buyers are holding back their decision to buy property. The sales in Delhi and Mumbai have gone down drastically," he added.

As a result, property developers are taking desperate measures to keep their accounts out of the red. Large developers like DLF and Unitech have already started selling plots from their land bank and other developers are also looking at similar sales to generate more capital.

MUST READ:Realtors turn innovative to lure home buyers

According to the Reserve Bank of India (RBI) figures, Indian developers held a total of $24.4 billion (about Rs 1,24,147 crore at current exchange rates) of outstanding credit at the end of June this year, which was 23 per cent higher for the corresponding period last year. With a continuous rise in interest rates, developers are struggling with the debt burden that has to be repaid every month.

"Fund availability is expected to be a concern on the back of a number of loans coming up for repayment in fiscal 2011-12 and interest rates are likely to remain at an elevated level," Adhidev Chattopadhyay, analyst with Edelweiss Securities said.

Experts said that even if there is no change in the prices of projects which have already been launched, new housing projects will be offered at much lower prices.

SPECIAL:Realty offering better returns than gold

"Home prices are at an all-time high, especially in the metros. It requires some correction in order to boost sales. We certainly expect a correction to happen in the coming months, which will be to the tune of 20-25 per cent," Anshuman Magazine, country head real estate consultants CB Richard Ellis said. According to experts, the increasing debt burden on real estate developers, the drying up of cash flows and difficulty in generating fresh funds is increasingly putting pressure on them to sell a part of their inventory. Since sales are not taking place they will be forced to cut prices to attract new buyers.

According to a report by Edelweiss Securities, "The debt load of 11 listed real estate companies in the country has risen by Rs 5,000 crore to Rs 38,500 crore, which represents a 15 per cent increase over the last 12 months." The report, which studies the debt burden of leading companies, including DLF, Unitech, HDIL, Oberoi Realty and Sobha Developers shows that these companies together piled up nearly Rs 14 crore of debt every day. If large unlisted real estate companies are also taken into account, the daily debt burden will shoot up further.

"A large part of this debt burden is due for repayment by the end of this financial year ending on March 31, 2012 . So, certainly there is pressure on developers. In that case they cannot hold on to existing prices for ever," Sandhir said. The increasing interest rate on loans is also adding to the pressure on the developers. During the July-September period this year, the debt burden went up further as interest rates rose. The RBI has adopted a hawkish tight-money policy to rein in inflation.

"In the last six months property sales in Mumbai have plummeted by 60 per cent. If we consider the Delhi NCR region, sales have gone down by as much as 50 per cent. We don't see any revival in sales without a price correction," a senior executive at Axiom Estate, a realty consultancy said.

Property brokers said the high prices are responsible for the poor sales. "If an affordable home in Delhi starts selling at Rs 80-90 lakh then there is no difference in what we call affordable and luxury housing. A typical middle-class buyer is not interested in purchasing a property at such a high rate, even if he needs a house," the broker at Axiom Estate said.

Market experts said that those who pick up realty for investment have lost interest in the market which has led to a further decline in demand. "The rate of interest on loans that these investors would have to take to buy property is higher than the rate of appreciation," Samarjeet Singh of Agni Properties pointed out.

Courtesy: Mail Today