Despite falling housing sales, builders are continuing to hold their price line without effecting the much anticipated downward correction. This is despite various attempts by the Reserve Bank of India in the last one year to cool real estate prices by raising housing loan interest rates. RBI measures, though, had the positive effect of putting a stop to further rise in real estate prices.
The situation is developing into a tug of war between builders and home buyers. The banks, a crucial player in the housing industry through home loans, have been urging builders to reduce housing price. Leading spokesmen of home loan industry - HDFC Chairman Deepak Parekh and ICICI Bank Chief Executive KV Kamat - have at many times in the past few months indirectly hinted that housing price should correct itself by 10 to 20 per cent.
However, builders say housing prices are going to remain the same. They say rising input costs and high land price does not allow them to reduce housing price. Sunil Mantri, Chairman, Mantri Builders says, "In case of residential properties, there are two prices to be taken into account, the price of the land and the price of the flat. I expect land prices to remain firm because of the land availability factor. The increased cost of construction will add to the hike in housing price."
Both builders and banks agree that high cost of housing is deterring sales. While the banks say the builders should reduce housing price, builders put the onus on the banks saying it is the interest rate on home loans that is reducing housing sales. "Due to rising interest rates on housing finance, affordability will be a question for the buyers. Most banks are likely to bring down interest rates by up to 1 per cent in the next six months from now," says Mantri.
But interest rates are determined by other factors affecting the greater economy and banks' ability to bring down interest rates on housing loans is not a function of demand-supply of housing stock.
Builders are even hinting that housing price may rise by 10-15% by the end of the year. As Mohan Deshmukh, President, Maharashtra Chamber for Housing Industry (MCHI) says, "The demand-supply equation applies to the property prices. On the whole, property prices may increase by 5 to 10 per cent by the end of this year. There is a shortfall in supply of land for development. The government needs to repeal the Urban Land Ceiling & Regulation Act (ULCRA) and rationalize the stamp duty structure, which would help in opening up surplus land for development and give a boost to the housing sector."
Parnay Vakil, Chairman, Knight Frank, an international real estate consultancy operating in India, concurs that there may be a 5 to 10 per cent increase in housing price by the year end. But he expects it to be mainly restricted to prime areas of Mumbai.
Anuj Puri, Chairman and Country Head, Jones Lang LaSalle Meghraj, another international real estate consultancy, says that the property prices have decreased in Delhi, NCR while property rates are on an increase in Kolkata, Chennai, Bangalore and Mumbai.
Speaking about Mumbai, "Let's take an example," says Puri. "In the past, there were 30 apartments available for sale to 100 buyers. Currently, there are 60 buyers for the same number of apartments. The estate rates can be expected to slide down if the number of buyers drops down to, say 20. On an average, if a builder got 100 inquiries in January 2007, the numbers have now come down to 60-70, especially in the Mumbai suburbs."
"In prime areas like South Mumbai, areas of Navi Mumbai, the property rates are likely to rise. Whereas, in suburbs, the property prices are likely to remain stable, or decrease marginally," says Puri.
Most industry experts are of opinion that the location of a property has a direct bearing on the estate rates. Ali Lokhandwala, Director, Lokhandwala Infrastructure says, "Prices in prime area, specially, 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."
According to Mantri, "In areas like the Vasai-Virar belt, Kalyan, Dombivali, there is an over-supply of land, so real estate prices in these areas may not rise in the next few months. But, in areas which have a good location, say in terms of connectivity, and in prime areas, the estate rates will rise."
So, in a scenario where affordability is a concern, how do builders attract buyers? Apart from depending on providence for a drop in interest rates, they are trying to add value to their offerings without bringing down the home price. Builders are offering to pay stamp-duty or re-imbursement on the same and amenities like modular kitchen and free parking space. "We are offering freebies like world class amenities and parking space and stamp duty waiver," says Lokhandwala.
Is it a good time to invest in a house?
The earlier rush to invest in property has slowed down. Even the builders are looking for buyers who are looking for a home to live in than speculative investments. "This is a good time to invest, as any other time because the property prices are likely to remain stable. It also depends on the location of the area of investment. Prime properties and areas like Navi Mumbai offer good investment opportunities. Investment from speculation point of view is not recommended due to high interest rates," says Mantri.
"Investment in property is a good decision if it is meant for self-occupancy by the buyer," says Harsh Roongta, chief executive of online loan advisory Apnaloan.com. Invest based on need and not on speculations - that is what most industry people feel, though some say people who can afford to take risk can invest in specific localities.
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