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Realty prices to stay high as demand rises

Sobia Khan & Ravi Teja Sharma, Bangalore & New Delhi, The Economic Times

February 24, 2012


Home prices are unlikely to fall this year as sales have picked up across most metros in the past few months, according to bankers and realtors.

Property sales across major cities, such as Bangalore, Chennai, Gurgaon and Noida, rose on increased buyer interest, Bank of America Merrill Lynch said in its report for the fourth quarter of 2011. While sales in Gurgaon averaged 5,200 units over the last eight quarters against an average of 6,100 units on offer in the same period, Noida saw a marginal rise in home purchases. Quarter-on-quarter home sales in Mumbai, however, fell 25%.

"Sales volumes across cities (Mumbai being an exception) surprised us positively. Mumbai is headed for a sharp correction by another quarter or two while other property markets may remain stagnant due to rising unsold stock," the report said.

The Confederation of Real Estate Developers' Associations of India (CREDAI) also said sales have picked up despite builders continuing to hold on to prices. "Sales have picked up in the last few months and developers have not reduced prices as input costs have gone up. At first chance, they will increase rates by 10-30% across markets," said Lalit Kumar Jain, president of the 6000-member association.

"With inflation easing and chances of the cash reserve ratio coming down, builders are not so desperate (to cut prices) anymore as they have been able to generate sales," said Renu Sud Karnad, managing director of HDFC Ltd, one of India's biggest housing finance companies. Besides, builders are unlikely to reduce prices as they are managing to break even with 40-50% sales.

Prestige Estates Projects has sold 30% stock in its newly launched property in Chennai in just a month. "We have clocked total sales of 1,464 crore in the last nine month as compared to 1,385 crore in financial year 2011," said Venkat K Narayana, CFO.

Mumbai-based property firm Lodha Developers said it has seen an uptick in sales since January. "People have been waiting for a price correction but chances of that happening are very slim," R Kartik, chief marketing officer, Lodha Developers.

"Properties in the range of 25-30 lakh are moving faster but the chances of NPAs in that segment is more. Our experience shows property prices have always been on the upside. A correction, if any, would be too small," said SP Singh, general manager (retail), Punjab National Bank.

Since last two quarters some 125 million sq ft has been added in new launches in the country's top six markets. Bangalore and NCR saw the highest number of new launches at 48 m sq ft and 31 m sq ft each followed by the Mumbai Metropolitan region with 16 m sq ft, Pune 16 m sq ft and Chennai 12 m sq ft.

Unsold Inventory

But currently only 17 m sq ft, or 14%, of the total space launched has been purchased, adding to the total unsold inventory, said Pankaj Kapoor, founder of Liases Foras Real Estate Rating & Research.

In Mumbai, unsold homes are now three times the 2009 levels at 29,000 units. Industry observers said it will take 18 quarters to sell them. Bangalore saw the steepest rise in available-for-sale residential units to 31,000 in the fourth quarter of 2011 from 18,000 in the year-ago period.

In Noida, unsold residential units have risen to 75,000 in the last quarter of 2011 from 68,000 a year ago.

Comparatively, unsold inventory levels were flat in Gurgaon at 19,000 units, and builders hoped to sell these units in the next three quarters.

"Sales in new launches have been good but older stock is not selling. There has been a spurt in new launches in Bangalore, Pune, Chennai and the NCR where pre-sales, which are at a lower value, have done well," said Kapoor.

In view of the huge unsold stock in major cities, equity funds and banks have called for a 10%-15% price cut. "There has been no concern on disbursement expect for Mumbai, where builders need to bring down prices," said Karnad.

"Despite being saddled with high inventory, no significant correction in prices has taken place in these markets yet. In fact, some pockets have witnessed rapid prices appreciation in the last nine months," said Rakesh Khanna, a deputy general manager who handles housing at State Bank of India. "A decrease in residential real estate capital values will significantly stimulate housing demand," he said.