Developers embrace brokers to clear glut in housing market

Developers embrace brokers to clear glut in housing market

New Delhi: A glut in the residential property market is driving developers to brokers to sell their projects in the Delhi-National Capital Region (NCR).

Nearly 66,000 residential units were launched between October and March in Delhi-NCR, according to property consultant Jones Lang LaSalle India. The launches included 43,000 units in Noida alone.

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Delhi-NCR includes satellite towns around the Capital such as Noida, Greater Noida, Gurgaon and Faridabad.

“Healthy supply across various segments of residential apartment—affordable, mid-income and luxury housing—has forced developers to sell through the broker network," said Arvind Pahwa, chief executive, South Asian Real Estate, an integrated development firm.

“Developers having a large number of unsold flats or those who have announced a mega-plan to build more than 1,000 or 2,000 apartments are doing transactions at varying price points through the broker network," said Shveta Jain, director-residential services, Cushman and Wakefield India, a real estate consultant firm. “Except a few, key areas in the Delhi-NCR market thrive on brokers."

The increased dependence on real estate brokers to sell properties in and around the Capital—a trend that hasn’t caught on in other large cities such as Mumbai—is forcing developers to offer discounts as deep as 30% to the agents while pre-selling soon-to-be-launched projects. A portion of this is usually passed on to the buyers.

But the discounts vary depending on the brokers involved, leaving it to customers to find agents who can offer them the best deals.

“A lot of projects that are being sold through soft launches would witness higher discounts being passed to brokers and high networth real estate consultants," said Om Chaudhry, chief executive at FIRE Capital Fund Pvt. Ltd, an India-focused real estate fund. “However, it is difficult to give a range for such discounts. It depends from developer to developer and project to project. The trend is more common in new supply and current launches."

For the developers, the brokers are ensuring brisk business, made easier in an improving economy. Gaurson India Ltd, a Noida-based real estate firm that has launched two residential projects in Greater Noida with about 8,000 units, has tied up with several brokerage firms to sell its apartments, said managing director Manoj Gaur.

“While we are able to meet our sales target, proceeds from sales has helped in funding the construction," he said, adding that Gaurson has sold nearly 80% of the Greater Noida apartments through brokers.

Tata Housing Development Co. Ltd sold at least half of the first phase of its upscale Primanti project in Gurgaon through brokers, chief executive and managing director Brotin Banerjeesaid.

“Delhi-NCR has a strong group of brokers who facilitate companies to sell their units," he said.

Noida-based Supertech Ltd has appointed several small and big brokerage firms to sell projects such as North Eye in Noida, expected to be the tallest residential project in northern India when it is completed.

Managing director R.K. Arorasaid developers started relying on brokers as sales declined at the end of 2009 and mid-2010. “After (2008-09) recession, the margin for these brokers have increased," he said, without sharing details on the increase.

Gurgaon has seen healthy sales in residential properties because of the involvement of brokers, despite prices increasing by up to 60% since April 2009, according to a report by Edelweiss Securities Ltd, also released in January.

“The number of brokerage firms has increased since 2008," said Kishen Milane, vice-president, National Association of Realtors-India, which has members in 16 cities. “In each city, the number of brokers is increasing by 15-20% annually. Delhi-NCR, being a prime market, has seen a significant increase."

Delhi-NCR, meanwhile, is in store for another glut in new properties. Of the 64 million sq. ft. of projects that were being developed in 2010 in Delhi-NCR, only 300,000 sq. ft. is ready for possession, says a January report from ICICI Securities Ltd. The balance is still under construction.