Demand back for ready homes, cautiously

Demand back for ready homes, cautiously
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First Published: Thu, Apr 23 2009. 12 17 AM IST

Built-up homes: A newly constructed tower at Bhakti Park in Wadala, Mumbai. Bandish Ajmera of Ajmera Group that has developed the project, says right pricing is crucial to quick sales of finished apar
Built-up homes: A newly constructed tower at Bhakti Park in Wadala, Mumbai. Bandish Ajmera of Ajmera Group that has developed the project, says right pricing is crucial to quick sales of finished apar
Updated: Thu, Apr 23 2009. 12 17 AM IST
Bangalore/New Delhi: Ashish Sharma, a first-time homebuyer in Bangalore, India’s tech capital, has begun house hunting with a budget of Rs30 lakh. A software professional in his late 20s, he and his wife have made up their minds on moving out from their rented apartment to a two-bedroom flat.
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At a time when developers are dropping sticker prices on newly launched projects— which typically take two-three years to complete—to attract buyers, Sharma is clear he will only buy a ready-for-possession flat. Even if it comes at a higher price. And even if the number of apartments he can choose from is limited.
“Ready flats are at least 10% more expensive than under-construction apartments,” says Sharma. “But I don’t want to wait for months for an apartment and am willing to shell out an extra bit to get a ready one.”
Real estate industry executives and financiers say that while demand for housing is slowly beginning to return in Indian cities after a contraction for much of 2008, it is restricted to constructed and ready-for-possession projects. Nationwide data on this is not available yet, with leading lenders such as Housing Development Finance Corp. Ltd and ICICI Bank Ltd declining to share home loan sanction data, widely seen as a proxy for housing demand, because they are in the so-called silent period ahead of announcement of their financial results for fiscal 2009.
Demand has gone up and enquiries for loans as also sanctions are increasing, executives at State Bank of India and the Indian unit of HSBC Holdings Plc. said. “...out of the total sanctions, almost our entire new origination is from ready properties,” says Ravi Subramanian, head (retail assets and cards) at HSBC India.
Most buyers, according to executives at leading real estate developers, don’t want to take the risk of waiting for two-three years for a project’s completion, and this marks a shift from earlier when demand was for under-construction flats.
“Demand for under-construction properties has dropped by at least 50% compared with a year ago, because buyers are sceptical about whether builders have adequate funds to complete the projects they have undertaken,” says Shweta Jain, head (residential) at Cushman and Wakefield, a property advisory firm.
Also pulling down demand for under-construction projects is a meltdown in real estate prices across Indian cities, which is a deterrent for customers who buy such assets as an investment. Earlier, especially in the five years until last summer, such buyers would invest in under-construction properties in the country, because they benefited from the appreciation in the property.
Built-up homes: A newly constructed tower at Bhakti Park in Wadala, Mumbai. Bandish Ajmera of Ajmera Group that has developed the project, says right pricing is crucial to quick sales of finished apartments. Ashesh Shah / Mint
But with realty prices dropping as much as 40% with no clear visibility on when they will bounce back, such investors have moved away. Earlier, investors used to constitute 60-70% of the buyers, says Jain, with 30-40% customers making housing purchases to live in themselves. The ratio has now reversed and end-users consist of 60-70% of the buyer segment, she adds.
Out of Bangalore-based Brigade Group’s unsold inventory, nearly 60% is ready or will be completed in the next three-four months, according to a senior company executive, who did not want to be identified because he is not authorized to speak to the media. He declined comment on the number of flats that are up for sale.
“Buyers are scared that their money will be stuck in a project that is far from complete. In the worst case, they want to visit the project site and see a structure, which is nearing completion, before booking a property,” says the executive.
In April, Mint had reported that irate buyers were asking DLF Ltd, India’s top real estate company by market value, to return money paid for apartments in a Gurgaon project because the firm had not begun construction on the development. Permissions were pending for the project, some buyers charged, though this could not be independently verified by Mint.
Still, prices of ready-for-possession apartments are yet to increase in tandem with the increasing preference of buyers for such flats and prices are 10-33% cheaper than a few years ago.
At Mumbai’s Dosti Acres, a project in Wadala, central Mumbai that has just been completed, sticker prices are still set at Rs7,900 a sq. ft—at least one-third lower than the Rs12,000 a sq.ft price at which the development was launched in 2006.
In the neighbouring Bhakti Park, a project by Ajmera Group, the prices have been kept at Rs8,000-8,300 a sq. ft. “Right pricing is crucial to home sales now and we want quick sales. Even if demand is for ready flats, we have to price it right and cannot afford to keep it in the same bracket as a year back,” says Bandish Ajmera, the group’s managing director, hoping sales will pick up in the coming months.
Elsewhere, Sobha Developers Ltd has about 100 ready apartments at its Sunscape project in south Bangalore priced at Rs38 lakh, about one-fourth lower than prices quoted late last year.
In Gurgaon, a satellite city south-west to New Delhi, availability of ready-for-possession apartments remains low because there is not much fresh stock coming into the market. “There are quite a lot of ready-to-move-in apartments, but the availability is restricted because most apartments are available only in the resale market. Sellers of such apartments are holding on, hoping for a better price,” says Sanjay Sharma, managing director of GurgaonScoop.com, a real estate portal.
Some real estate executives say the result could be a demand-supply mismatch in a few years. Waning demand for under-construction projects, they say, will result in fewer apartments being ready for occupation in two-three years. In Bangalore, for instance, some 13,000 residential apartments are today under construction, much less than in 2006 and 2007 when the annual run rate was 35,000 units, says Balkrishna Hegde, a former president of the Karnataka chapter of the Confederation of Real Estate Developers’ Association of India, an industry body.
And that could see prices go up again.
madhurima.n@livemint.com
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First Published: Thu, Apr 23 2009. 12 17 AM IST