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Letting agencies, decorators see slowdown amid real estate woes

Letting agencies, decorators see slowdown amid real estate woes
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First Published: Wed, Jun 27 2007. 11 58 PM IST
Updated: Wed, Jun 27 2007. 11 58 PM IST
When Deepak Kohli started his real estate consultancy three years ago, he barely had enough time to grab a meal. His day was punctuated with never-ending phone calls, rushed trips to show homes to eager buyers and late night deal making—closing out on the purchases that stacked up during the day.
Now, Kohli says, he has enough time for afternoon siestas and evening trips to India Gate and its manicured gardens. “Earlier I would be in office by 9:30am. Now, I walk in at 10:30. I have time to have a laidback lunch and these days I leave office by 7:30 to party with my family,” he says. A slowdown in the real estate market is putting some balance back into his life. “Enquiries for buying residential property has gone down by 50%,” says Kohli, director of Deep Realtors. “We used to get 50 calls earlier, out of which five-six eventually turned out to be buyers. Now, we get just 5-10 calls, and no buyers.”
Real estate brokers such as Kohli are feeling the pinch of sky-rocketing real estate prices and rising interest rates that are at a two-year high. And suffering with them is an entire industry ranging from advertising to interior decoration firms that have mushroomed and benefited from the real estate boom of the last three years. “I used to give 3cm advertisements in newspapers earlier,” says Kohli. And even with that “the response used to be good then. But now, I get very few enquiries.”
Kohli has been in the real estate industry for long. He was earlier a director of K K Real Estates Ltd, a company owned by his father. This is the first time that Kohli claims he has seen a slowdown this sharp.
Aditya Jha, senior manager of Settlers India, an authorized sales and letting agent for India’s top developers such as DLF Ltd and Unitech Ltd, says that enquiries have dropped by 35% in the last two months. Settlers India sells residential and commercial property.
According to Jha, 50% of the enquiries for residential properties used to come from investors. “Earlier, people were buying homes for investment purposes. But now they have stopped,” he says. “Nothing is affordable.”
In the last three years, prices have gone up by 300% in some pockets of New Delhi and Mumbai, spawning a whole generation of buyers wanting to own their own homes and some others investing for quick gains from rapidly rising values of property. However, a slew of events, from slower gains in prices of homes to tighter lending parameters, have squeezed some investor-buyers out of the market.
Manish Agarwal, executive director, of Kolkata-based Pioneer Property Management Ltd, a company largely into marketing of major property projects and leasing built-to-suit retail and corporate spaces, agrees that they are seeing an impact on their business.
“The turnover of interested queries into actual bookings has come down in residential properties,” he says. He sees the interest of customers for owning a second or third homes waning.
The past three-four months have seen the cancellation of bookings go up from 2% to 4%, Jitendra Khaitan, CEO, Pioneer Property, said. “Earlier, when we saw clients cancel their bookings immediately after making them, we knew they would have found other investments. But now, we are seeing cancellations after almost 70% of the payments are made. They give us personal crisis and financial crunch as reasons, but we know it is the interest rates.”
“(Also), builders facing a financial crunch are delaying the delivery of projects in the commercial property end. These delays are by four-five months,” Agarwal says.
Some buyers, are holding out, hoping that real estate prices will fall. Mahendra Singh, proprietor of Satguru Engineers and Contractors, which is a Rs5 crore company, says the slowdown is palpable and has driven some his customers away. “There has been a little slowdown in the residential construction business,” Singh said. “People who buy to live in those homes has fallen by 10%. And the investor community has vanished from the scene.”
However, the slowdown has not had an impact on the company’s profit margins, which at 15% of the revenue, “have remained the same,” he said.
Vishal Saxena, director of Hindustan Real Estates Pvt. Ltd, which provides property consultancy, sale, purchase and renting of property services in New Delhi, says his business is being affected selectively. “Buyers have deferred their decision to buy homes. I have not seen much change in the demand in South Delhi, but in other parts of Delhi and the NCR, there are absolutely no buyers,” Saxena says. “Business has come down by 20-30%.”
While individual buyers are staying away, the demand for commercial property is still robust, say some. “In terms of commercial property there does not seem to be a difference,” says Jha. “Demand for office space is still high. This is because there is very little office space available and the demand outstrips the supply.”
It’s not just brokers who have seen their business slump. Advertisements by real estate companies have also taken a hit as many builders are facing a cash crunch.
“Companies are not able to justify advertisement costs,” says Kaushik Sengupta, vice-president, sales and marketing of Eros Group, a real estate firm. “Money has been blocked for real estate firms,” he says, referring to the various government steps that have made it difficult for real estate developers to raise funds. “How long can you do branding when you don’t have the finances,” he asks. According to Sengupta, real estate advertisements are down 50%. “Except for an advertisement to announce the launch of a project, real estate companies are not really advertising,” he says.
Arindam Mukherjee, branch manager of New Delhi-based Arms Advertising, which has clients such as Parsvnath Developers Ltd and Paras Buildtech agrees. “The size and frequency of advertisements has come down in last two months,” he says. This fall also has a lot to do with ad agencies being sceptical about taking on real estate clients such as small builders or recent entrants. “But we have not had problems with bill payments,” Mukherjee says.
Some advertisement agencies in Chennai and Kolkata say they have not felt any change in demand from real estate clients. “If the slowdown or price correction happens, this is when the real estate sector is challenged. I feel that we would see increase in business because of a slowdown,” Prakash Dharmarajan, Chennai head of Ogilvy & Mather, said.
Typically, in a booming market, real estate companies would have to announce their property, as there are enough buyers, says Dharmarajan. But when there is a slowdown, it requires persuasion to make buyers decide on a particular property, he adds.
Chirantan Chandran, general manager of Mindshare, an advertising agency that deals with some of the major property advertisements in Kolkata, also does not see any market trend reflecting a reaction to rising interest rates or any fund crunch. “I have clients who have projects ready for release but are holding back, because they have not got requisite environmental clearances,” he says.
Sanjay Ghosh, adviser to Kolkata-based landscaping agency, Good Earth, has seen a mild fall in his business. This summer, his company is handling 29 contracts, six less than what it did around the same time last year. He expects this lean period to last only through this financial year and business to pick up next year.
“People have become selective about investing in interiors,” says Kohli, whose firm also handles interior decoration and renovation work. Consumers, at least the middle class, do not have the budget to indulge in interior decoration. “Construction costs have spiralled and with government-imposed taxes, you need a big budget to do interior decoration,” says Kohli.
Adding to consumer’s woes is VAT of 12.24%. If one has to do complete interior decoration for a house measuring 1,000sq. ft, the cost works out to Rs1,000 per sq. ft, around Rs10 lakh, says Kohli, adding that on this Rs10 lakh, the consumer will have to dish out Rs2,40,000 as taxes.
But for G S Marketing Associates, that specializes in property exhibitions, working closely with the Confederation of Real Estate Developers Association of India, it is business as usual. They say they will hold a mid-year exhibition in July and do not see any impact on business. But the sceptics argue that while there may be an interest to browse, whether that translates into a purchase, will be the real test.
(Sanchita Das in Kolkata, Gayatri Ramanathan in Mumbai and John Samuel Raja D. in Chennai contributed to this story.)
(This is the last in the three-part series on the impact of a softening real estate market.)
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First Published: Wed, Jun 27 2007. 11 58 PM IST
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