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Discounts pay, home buyers back in market

This article was posted on Jun 13, 2009 and is filed under Press Releases

NEW DELHI: Home sales have picked up in select Indian markets over the past couple of months, but analysts warn that prices may not have bottomed out yet as developers are sitting on a huge inventory.

Markets such as Delhi National Capital Region (NCR), including Delhi and surrounding areas such as Gurgaon, Faridabad, Noida and Ghaziabad, have seen a rebound in home demand, with several builders launching projects at a discount to market rates.

They call it disruptive pricing. And it has worked. In one day, DLF, India’s largest real estate company, sold almost double the number of flats in Delhi than all builders together in Mumbai in the March quarter. Check out the numbers. DLF sold 1,356 apartments in Delhi on April 7, when it launched a residential project in West Delhi by offering flats at up to 32% less than market rates.

Unitech, another builder with a nationwide presence, said it sold 3,000 apartments in two months in Gurgaon, Mumbai and Chennai. Jaypee Group said it sold 5,000 apartments in Noida in three months, while BPTP claimed to have sold 4,700 flats in Faridabad in one month. Compare that with 740 flats sold in the whole of Mumbai in the first three months of 2009 and 4,491 apartments sold in the national capital region in the same period, as quoted by a recent UBS report.

“There is a definite a rise in interest among home buyers and an attractive pricing has led to bookings,” Anshul Jain, CEO of international property consultancy firm DTZ India, said. It was the cement-to-hotels conglomerate Jaypee Group that started the affordable house bandwagon in the capital region, by targeting frills and reducing apartment sizes. “We offered houses at prices 25-30% lower than the market rate and that brought buyers to us,” said Jaiprakash Associate director Rita Dixit, who oversees the group’s real estate business.

The pick-up in demand is unlikely to firm up prices soon. “It’s the end user’s market. It will be a long while before speculators get in and jack up prices,” said Unitech MD Sanjay Chandra. UBS analysts, in fact, see further erosion in prices. “The industry will still see further price cuts, as higher absorption is required to clean the system of current inventory,” its analysts Suhas Harinarayan and Pankaj Sharma wrote in a sector report.

The March quarter sales accounted for just 10% of the inventory in Mumbai and Delhi, it said. At that rate, it will take another 10 quarters to flush out the inventory even if there’s no fresh supply. In a separate report, Goldman Sachs analysts Vishnu Gopal and Shruti Gandhi said the upward movement in prices was unlikely this financial year.

“We expect that projects may continue to be launched below prevailing market rates,” they said. Some people, like Delhi-based Raheja Developers’ chairman Navin Raheja, however, expect prices to firm up. “Once execution begins at the new projects and completion risk reduces, properties will start attracting higher prices,” he said, about the new projects going at discounted rates.

Property prices have seen significant correction. As per Goldman Sachs, average annual fall in residential prices was 21% in Gurgaon. Prices in Bangalore, Mumbai and Hyderabad are 21%, 16% and 15% off their highs, respectively.Mumbai suburbs Goregaon and Borivali saw apartment prices halve from their peak, while the fall was 35% at Greater Noida.

source: Economictimes

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