Re­act­ing to a call from RBI gov­er­nor for price cuts, builders claim over 90% of sup­ply is in af­ford­able band

The Economic Times - - Com­pa­nies: Pur­suit Of Profit -

Ravi Teja Sharma & Kailash Babar

New Delhi | Mum­bai: Re­spond­ing to Re­serve Bank of In­dia Gov­er­nor Raghu­ram Ra­jan’s call to builders to cut home prices to stim­u­late hous­ing de­mand, real es­tate de­vel­op­ers and in­dus­try ex­perts said there is very lit­tle wrig­gle room for any fur­ther price cuts.

“Over 90% of the real es­tate sup­ply in the coun­try is now in a very af­ford­able band and has al­ready cor­rected. In some places prices have come down 25-30%. There is no fur­ther scope for any cuts,” said Ge­tam­ber Anand, na­tional pres­i­dent of the Con­fed­er­a­tion of Real Es­tate De­vel­op­ers’ As­so­ci­a­tions of In­dia. Any fur­ther cuts, Anand said, will spawn NPAs (non­per­form­ing as­sets) and re­sult in non-de­liv­ery of projects by many de­vel­op­ers.

The past two years have been among the worst for In­dia’s hous­ing mar­ket, with apart­ment sales slow­ing down and un­sold apart­ment in­ven­tory lev­els reach­ing record highs. Ac­cord­ing to prop­erty re­search firm Li­ases Fo­ras, the top eight cities had 1,124.9 mil­lion sq ft of un­sold in­ven­tory at the end of De­cem­ber 2015, up 21% over that a year ago. The cen­tral bank has cut rates by 1.5% since Jan­uary 2015. It cut the key pol­icy rate by 0.25% to 6.5%, the low­est in more than five years.

“I am hope­ful that as in­ter­est rates come down, there will be more credit and buy­ing. And I am also hope­ful that prices ad­just in a way that en­cour­ages peo­ple to buy,” Ra­jan had said on Mon­day in the YB Cha­van Me­mo­rial Lec­ture in Mum­bai.

Dharma’s Jain, pres­i­dent of de­vel­op­ers’ body MCHI-CREDAI said builders will be more than happy to ra­tio­nalise prices and get more busi­ness.

“Un­for­tu­nately, when we look at the eco­nomics of it in­clud­ing land cost, in­put cost and taxes, we don’t see much scope for this,” Jain said.

Jain re­ferred to taxes, which he said are at an all-time high of 28-43% of over­all price of a prop­erty, de­pend­ing on the lo­ca­tion.

“Most de­vel­op­ers are of­fer­ing best pos­si­ble prices con­sid­er­ing sub­ven­tion schemes and other of­fers be­ing given cur­rently. How­ever, since RBI gov­er­nor has sug­gested, we will sit to­gether to see how we can do more,” Jain said, even as he urged banks to pass on the rate cut to home loan tak­ers. Over the past one year or so, many builders have tried to stim­u­late the mar­ket by of­fer­ing sub­ven­tion and other schemes, where buy­ers pay a small amount up­front and take a loan for the rest but start pay­ing in­ter­est on their loan only af­ter pos­ses­sion.

Sekhar Reddy, man­ag­ing direc­tor of de­vel­oper CSR Es­tates in Hy­der­abad said land cost, which is a big com­po­nent of hous­ing, is not in the builders’ con­trol.

“Ev­ery state gov­ern­ment, to meet its rev­enue tar­gets, is es­ca­lat­ing cir­cle rates ev­ery year. So ev­ery year price of land is go­ing up. Un­less you cur­tail land prices, hous­ing prices can­not come down,” Reddy said.

Point­ing to in­creas­ing labour costs and a mas­sive short­age of skilled labour, Reddy asked, “given all of th­ese things, how can we re­duce prices?”

He sug­gested that due to high un­sold in­ven­tory in the mar­ket there is any­way pres­sure on pric­ing due to com­pe­ti­tion in this buy­ers’ mar­ket. This has meant prices have in­deed come down in most mar­kets over the past two years.

Li­ases Fo­ras’ man­ag­ing direc­tor Pankaj Kapoor said: “If you look closely, prices have been low­ered in new launches. If we take a weighted av­er­age price of the un­der-con­struc­tion in­ven­tory and of new launches in any city, there is close to 15-20% re­duc­tion.”

In the past 2 years, apart­ment sales have slowed down and un­sold apart­ment in­ven­tory lev­els have reached record highs

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