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Tuesday, October 25, 2011

Less Fireworks for Builders This Festive Season

The period around Diwali is usually the best time in the building trade, but this festive season a triple cocktail of volatile markets, double-digit interest rates and poor consumer confidence in a slowing economy has hit sales volumes, portending hard times for India’s real estate sector. Some brokers and market experts are bracing themselves for a 25-30% drop in transaction volumes in the country’s top six property markets during the October-December busy season, which, if it happens, could trigger a competitive spiral of discounting to get rid of mounting inventories and restore depleted cash levels.

But builders are holding on to price levels while buyers, reluctant to book flats at current price levels and interest rates firmly in double digits, remain convinced that it’s only a matter of time before the penny drops. Which side will blink first is still not certain, even though some builders concede all is not hunky dory. “There may not be much of a light for developers during this Diwali,” said Niranjan Hiranandani, chief of Mumbai-based builder Hiranandani Group. “It may not turn out to be a good one in terms of sales activity.”

Property developers are trying their best to woo buyers with festive offers, although these have failed to have much of an impact so far. With high inflation eating away at their earnings and financing costs high, buyers are looking for a significant correction in property prices rather than some festive season freebies. “Builders need to accept reality. This acceptance will lead to price correction and revival in volume,” said Pankaj Kapoor, managing director of Liases Foras Real Estate Rating & Research. Kapoor attributes the drop in sales volumes to steep property prices, rising interest rates and poor supply of socalled ‘affordable housing’ projects.

“Usually, during the festive season, prices firm up and there are new launches as well. But this season, both the inventory and prices of residential properties have remained static,” said Samarjit Singh of Agni Property, a property brokerage. The National Capital Region (NCR) comprising the satellite towns of Noida, Gurgaon and Faridabad bordering Delhi, which turned in good sales numbers in the past two years, is facing supply constraints.

This is particularly true for Noida, which has seen a slew of regulatory actions prompted by farmers’ agitation over land acquisition. Singh says a lot of developers are repackaging their previously unsold inventory with special discounts to push sales. Lodha Developers in Mumbai and Ansal API in Delhi are among the builders who are repackaging their older inventories with newer discounts. “As far as sale of plotted land and mid-income housing is concerned, demand is intact in NCR and good sales traction is expected during this season,” said Anil Kumar, CEO of Ansal API. “However, sales may take a hit wherever there are issues of land title.”

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