NO BANG, ONLY WHIMPER

“The entire housing driven economy has taken a setback. The governments are trying to recover revenue through higher taxes and premiums, which will be counterproductive and is resulting in the price escalations. The governments has preferred to avoid taking decisions in real estate sector to avoid controversies, which further resulted in slow down and price increase due to shortages. The business mathematics has gone wrong for most developers and this ultimately affects consumers as well as governments,” says Lalit Kumar Jain, the national President of CREDAI and CMD of Pune-based Kumar Urban Development.

The buyers had to put on hold their decision due to price escalations and inflationary pressures. Further, interest rates went on increasing and home loans were turning unviable. Festival seasons and exhibitions could not boost buyer sentiments. Gimmicks failed as well.

“Developers have consciously reinvented themselves, by launching new projects, which would appeal to customers in the current economic environment and sentiments. However, due to rising input costs and increased cost of debt, developers have not been able to lower prices. Thus many developers took to innovative marketing and pricing strategies like branded apartment, 20:80 payments etc to get better response,” says Sanjay Dutt, Executive Managing Director-South Asia, Cushman & Wakefield.

SEARCH FOR EQUILIBRIUM

Lack of sales led to rise in inventory. Holding costs coupled with rising interest forced many developers to hike prices further. However, the move could not generate desired sales. In fact, the rise in inventory translated into over-supply. This tried to push the prices downward resulting in stabilisation in many cities and a slight appreciation in some traditionally established prime residential locations where residential activity was limited.

“In an overall sluggish market during 2012, the residential space in micro markets remained stable with select projects drawing a positive response. In Mumbai particularly, the high-end residential market picked up marginally, albeit selectively, in the last quarter of 2012,” says Devang Varma, director, Omkar Realtors & Developers who has several projects in Mumbai.

The National Capital Region (NCR) and Mumbai witnessed prices moving slightly upward in few pockets while cities in southern India and most of the tier-II and tier-III towns observed near stagnancy. In the resale segment a slight downward correction was experienced across the country. The impact of discouraging factors was most felt in the mid-priced and lower segments.

As per the report by Cushman and Wakefield, the average price increase in micro-markets is of 10 per cent in the mid-range segment in 2012 when compared with the previous year, while it is a 12 per cent increase in high-end properties over the same period.

This could be an encouraging fact for some developers but surely not for the home buyers who are already reeling under the pressure of astronomical property prices. Many buyers began to counter this rise by grouping up and then negotiating with the developer for bulk buying. It created a win-win situation where developers received the much wanted big cash flow and buyers booked their flats at reasonable prices thereby offsetting the price rise.

“Over the last year, there have been many reports of sluggish demand in the sector. This is untrue; the needs of prospective home buyers are not being fulfilled in the current market scenario due to artificial over-pricing by real estate cartels, and there exists large latent demand in the market. We have seen a growing demand. We were able to close 100 bookings within a six-week horizon in one of our recent project. This is definitely not a sign of a sluggish demand,” says Nitin Degaonkar, MD, Home Buyers Combine, a group buying portal active in Pune.

The fact is that demand is high but prices are much higher. Those who could not meet the peaked-up prices have become fence sitters, waiting for prices to fall. That did not happen. However, the prices stabilised.

“The year can be considered positive for property buyers as prices have remained stagnant unlike the previous two years where most of the cities witnessed a steep price rise. This offers a window of opportunity for those buyers who were sitting on the fence till now to start considering their purchase decision.” Says Pranab Datta, chairman, Knight Frank India.

HOPES HIGH FOR RATE CUT, LOWER EMIs

Liquidity was another major hurdle in the sector, especially for the developers. This was reflected in delaying of projects or projects not taking off at all. Many developers feel that the policies of RBI along with government’s inaction have dampened the sentiment.

Affordable housing was the most hit due to liquidity crunch. However, the government seems serious about two bills — the Real Estate Regulatory Bill and the Land Acquisition Bill, which are expected to pass during the current winter session of Parliament. This will pave way for improved clarity and transparency. FDI in retail will lead to opening up of some avenues for additional funding. From the local perspective, the stagnancy of property prices will also attract investors to some good projects as for them, the prices will only move up from present levels.

However, for home seekers with limited sources of funding, home loans are the only option. But they are already stumped by the high interest rates, that are hovering around 10 to 13 per cent for floating and fixed rate loans. Most of the home buyers are holding their funds in liquid instruments, mainly as bank deposits which would fetch them around 8 to10 per cent annual interest. So, these buyers are waiting for that difference of 1 to 2 per cent to disappear and at the same time wish that prices do not rise any further.

“The RBI has already given a cue of likely rate cuts in future monetary policy review. This will help in easing the liquidity situation. The RBI has also instructed scheduled banks to not allow a rollover of loans given to the developers into next financial year. This will mean that developers will see an urgency to dispose of their unsold inventory in order to be able to raise funds to pay back their loans. This holds the potential for a major correction in residential prices especially in the NCR. It is highly advisable for prospective buyers not to hurry their purchase decisions, but to wait and watch how the situation unfolds by the end of first quarter of 2013,” says Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India.

The bottom line is that as the year draws to a close, the continuing situation of uncertainty in the economy and ballooning cost of properties, home buyers are left only with hopes of better times as they ring in the year 2013.