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Real estate developers likely to cut prices

Real estate developers likely to cut prices
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First Published: Mon, Oct 27 2008. 09 51 PM IST
Updated: Mon, Oct 27 2008. 09 51 PM IST
New Delhi: Indian real estate developers are expected to cut prices by 30% and more over the next three to six months. At a recent TiE-Indian Angel Network, summit in the capital, industry players including real estate developers, private equity players and real estate brokers and consultants, all answered in the affirmative when asked whether they see the possibility of a price cut in future.
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The Indian realty sector has been in a meltdown over the past few months. Prices for both commercial and residential property have come off by 20-25% over the past few months. Industry experts and players say they expect them to go down further.
Real estate builders Kailashnath Group’s managing director and owner Sanjay Khanna says those who are not reducing prices now will be forced to do so in some time. Yet another real estate developer Ashish Mathur, head of business development and marketing for Mahindra World City simply says, “Yes they will”, in answer to Sanjay Bansal’s question on the 30% plus fall for realty prices coming forward.
Anil Chawla, private equity head for of DE Shaw & Company, one of the biggest private equity investors in real estate in the country, says he also expects the prices to fall. “I have already begun hearing rumours that some developers are planning major price reduction plans by Diwali,” he says. Similarly Santhosh Kumar, deputy CEO of Jones Lang LaSalle Meghraj, one of India’s leading real estate consultants and brokers, says that there are definite prices discounts available for people who are willing to pay upfront even now. “They may get 30% to 50% discounts even now,” he says.
There are several factors going against the realty sector. The main one is the lack of demand from homebuyers and the slow off take and over supply of commercial real estate.
In the case of residential property, the rate of interest on home loans has gone up from around 7.75% in 2004 to around 12.75% now. Almost 90% of home buyers take the home loan route. For a person taking a home loan, the rate of interest has increased 5% in the last four years. If a person borrowed a lakh for 20 years at 7.75% in 2004, he would have to pay around Rs 96 thousand as interest eventually. At the present rates, the interest rate burden has now increased to more than Rs 2 lakh on the same amount. Also, as home loans become expensive, the slowing Indian economy and the global financial crisis have translated into a liquidity crunch. So even if someone is willing to get a home loan at a higher rate, the banks may not have the money to lend.
In case of commercial property, the slowing economy has meant that companies are shelving hiring plans and cutting back on production. Both imply they require less commercial space. According to a report on the Indian office market by CB Richard Ellis, a global real estate consultant, seven major Indian cities including Delhi, Mumbai, Kolkata and Bangalore showed a marked decline in demand during the quarter ending September 30. The report also said leasing of office space had slowed down in the first two quarters of the year.
All these developments seem to point to one thing - that the market seems set for a price cut going forward.
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First Published: Mon, Oct 27 2008. 09 51 PM IST