Monday, September 10, 2007

Concrete concerns continue

In spite of reports that property prices are likely to see a correction, experts feel otherwise.
 
For the potential homebuyer looking for properties in prime areas, there is bad news. Builders and property experts are in unison that real estate prices are unlikely to go south.
 
This is despite various attempts by the Reserve Bank of India (RBI) in the past couple of years to cool real estate prices by raising interest rates and hiking risk weightage on the same.
 
These measures, though, have had some positive effect by reining in the growth rates in real estate prices.
 
Even, industry experts like HDFC chairman Deepak Parekh and ICICI Bank CEO and MD KV Kamath have been of the opinion that housing prices should correct by 10 to 20 per cent. However, builders say housing prices are likely to hold firm, especially in prime areas of the metros.
 
The reason: rising input costs and high land prices. Says Sunil Mantri, chairman, Mantri Builders, �I expect land prices to remain firm because of the lack of land availability in a city like Mumbai. Also, the increased cost of construction will add to the overall cost.�
 
While both builders and banks agree that the high cost of housing is deterring sales, the scenario is not as bad as is being perceived.
 
As Anuj Puri, chairman, Jones Lang Lasalle Meghraj puts it, �In the past, there were 30 apartments available for sale to 100 buyers. Now there are 60 buyers for the same number of apartments. Real estate rates can be expected to slide down if the number of buyers drops down to say, 20.�
 
As the homebuying season approaches, builders expect housing prices could rise further by the end of the financial year. Says Pranay Vakil, chairman, Knight Frank, �I expect a 5 to10 per cent increase in housing price by the year end. But it would be restricted mainly to the prime areas of Mumbai.�
 
In other parts of the country, Puri says property prices have decreased only in the National Capital Region (Gurgaon and Noida mainly), while they are on an increase in Kolkata, Chennai and Bangalore.
 
The main problem in most of these places is the availability of supply, especially in a city like Mumbai. Factors like the pending repealing of the Urban Land Ceiling and Regulation Act and rationalisation of stamp duty structure need to be addressed on a war footing to create an atmosphere which is conducive for price reduction.
 
Says Ali Lokhandwala, director, Lokhandwala Infrastructure, says, �Prices in prime areas of South Mumbai have not peaked as yet. So, I expect a hike in the prices in these properties. But, in areas beyond Bandra, the property prices will remain stable.�
 
The latter especially holds true for areas like the Vasai-Virar belt, Kalyan, Panvel and Dombivali, where there is an over-supply of land.
 
In a scenario where affordability is a concern, how do builders attract buyers? Apart from hoping for a drop in interest rates, they are trying to add value to their offerings.
 
These include offers to pay stamp duty and amenities like modular kitchen and free parking space. �We are offering freebies like amenities, parking space and stamp duty waiver,� admits Lokhandwala.
 
More importantly, builders are not encouraging speculation. Typically, when a new property comes up, the builder would sell some flats to speculators, even if there are no genuine buyers. This is because it helps them get instant liquidity.
 
However, in recent times many builders are not encouraging such buying. This is because if a speculator buys and exits within months after booking a small profit, it could adversely impact the prices in the building.
 
For somebody buying a second home through a loan, it may not be a great time to be in the market. �While this is a good time to buy as property prices are likely to remain stable, speculative investment is not recommended due to high interest rates,� adds Mantri.
 
In other words, the perpetual fence-sitter who is expecting to get great buys in prime areas should not feel too encouraged. For genuine buyers, timing is never important.

Concrete concerns continue

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