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Bangalore's builder cartel

June 11, 2008

Prices of a product fall if demand for it eases is what conventional economics would have us believe. But Bangalore’s real estate market will likely defy that logic. Recent market surveys reveal that the demand has, by and large, slackened, but all leading developers of the city have come together to pep market up by deciding to hike the price of their products. The price will go up between Rs 75 and Rs 500 per square foot, depending on the size of the flat.

Realty check: Still sky-high
Realty check: Still sky-high
The Karnataka chapter of Confederation of Real Estate Developers Association of India (CREDAI), a real estate lobby, has made an announcement to this effect. And that has caught independent market watchers by surprise. For, the decision on price revision has not come from individual developers, but from CREDAI. Any cartel in the making? No, says CREDAI. “A cartel is one that cuts supply when the demand is robust. But we are not limiting the supply at all. Also, we neither control individual members nor interfere with their commercial decisions,’’ claims CREDAI-Karnataka President Balakrishna Hegde.

S.R. Raviprakash, a senior lawyer with Dua Associates, Bangalore, thinks otherwise. “CREDAI’s approach looks like monopolistic and against the spirit of the Competition Law,” he says. CREDAI, according to Hegde, took the decision after a bulk of members approached the body asking for an across-the-board hike to absorb the rising cost of inputs.

Says Dhiraj Prabhu, Director of Skyline Developers: “CREDAI has only laid down a broad band within which to increase our prices and save our margins, which have been under pressure for sometime now.’’ CREDAI’s Karnataka chapter consists of 124 leading developers who are said to dominate 80 per cent of real estate transactions in Bangalore.

The organisation, meanwhile, does not agree that the realty market has tanked; instead, it says the growth in capital value of properties has slowed. “Since January last year, the growth has only “stabilised” at around 3 per cent,’’ claims Hegde.

Others think CREDAI needs help. “They badly need a strategy consultant. Increasing prices in a falling market is a wrong thing to do,” says Amit Bagaria, Chairman and CEO of property marketing company, Asipac. CREDAI, take note.

K. R. Balasubramanyam

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