Pune: A slowdown in demand for houses across India has hit Pune hard, pulling down realty prices by about one-fifth, resulting in builders and developers lavishing discounts and gifts at buyers, mostly the industrial city’s software and auto sector professionals.

Switching lanes:The current slump has hurt builders such as Atul Chordia of Panchshil Realty (above), who had earlier set sights on the upper middle class and are now looking at customers with modest budgets. Hemant Patil / Mint

In reaction, here’s what some Pune developers are doing:

* Kubix Realties Pvt. Ltd is offering a 3 series BMW car priced at around Rs33 lakh or 2kg gold free on purchase of a Rs2.75 crore bungalow, equivalent to a 12% discount.

* Wadhwani Constructions is offering customers a Tata Indica car on purchase of a three-bedroom apartment and a Honda Activa scooter to buyers of a one-bedroom flat.

* Belvalkar Housing is offering customers a price guarantee designed to protect the buyer against huge fluctuations in the real estate market, guaranteed until possession two years from now. This essentially means that if the apartment is selling at a lower rate at the time of possession, the builder will pay the buyer the difference with interest.

* Others are offering apartments fitted with appliances.

Growing realty demand in Pune, says a lender, had largely been driven by IT professionals and a recent surge of auto businesses in Pune. “With both these sectors now in the middle of a slowdown, there has been a marginal drop in demand from this category of buyers," said Sonal Mody, regional manager, Maharashtra, Housing Development Finance Corp. Ltd.

Other home loan financiers, who spoke on condition of anonymity, say the situation is more bleak than marginal. The demand, according to them, is as much as 30-45% softer since the second quarter of this fiscal. In other Indian cities, residential realty prices have dropped 5-15%, according to developers and consultants.

This slump hurts the builders targeting the upper middle class more. “Till recently, it was routine for young IT sector couples to purchase a two-three bedroom, technology and amenity-rich apartment that cost Rs80-90 lakh but that is now a thing of the past," says Atul Chordia, chief executive of Panchshil Realty, a developer of high-end residential and commercial space.

Bank financing—both cost and quantum available—is having an effect too. Such funds, which covered up to 90-95% of an apartment cost earlier, have been brought down to 80% for most people, says Rohit Gera, executive director of Gera DevelopmentsPvt. Ltd. “And, as for buyers with high risk profiles, such as those in the IT field, and seen as job hopping too often, this has been brought down to around 70% and this has impacted their purchase decision," he adds.

Demand from Mumbai buyers, too, is on the wane in Pune, says Framroze Kalyanvala, head of Pune operations for real estate consultancy Knight Frank India Pvt. Ltd.

Prices of apartments on the outskirts of the city, meanwhile, have also dropped from a minimum of Rs3,200 per sq. ft to Rs2,500 a sq. ft. Chordia says the market for apartments in the Rs3000-5000 a sq. ft range has collapsed and demand will only recover by 2010-2011.

Still, some customers don’t think this is the right time to buy in a city that has key facilities of large companies such as Tata Motors Ltd and Infosys Technologies Ltd. “How can the price of a flat go up from Rs30 lakh to Rs90 lakh in just two years," asks Shubada, a Pune doctor, who is in the market for a three-bedroom apartment. She gave only one name.

Goldman Sachs Group Inc. estimates realty prices across India may fall by up to 30% from current levels. After India’s last housing bust in 1996, real property prices fell some 40% over three years, the investment bank said in a 24 November report.

Developers are talking of the high-disposable income segment being replaced by a cautious one with a more modest budget, and are now looking to tap into this demand.

Chordia, whose firm earlier this year announced a Rs7.5 crore-an-apartment project designed by avant-garde architect Philippe Starck, says he will launch next month a development with 2,000 apartments of 550-800 sq. ft each at Kharadi, near a special economic zone that employs 10,000 people. The apartments will still cost Rs5,000 a sq. ft, but they will be fully furnished and come with appliances.

Cross-town rival Gera, too, is set to announce a project featuring one-bedroom apartments in the same neighbourhood.

Builders of premium housing, yet, continue unfazed. Amar Builders, a company with a presence in economy to premium projects, has announced Manhattan, a Rs100 crore development that has homes selling for Rs6.5 crore each in Baner, a sought-after location in the city.

“There will always be demand for premium homes in Pune... This segment is not affected (by the slowdown)", says Hrishikesh Manjrekar, director of the firm.

Shabana Hussain contributed to this story.