Following an appeal by finance minister P Chidambaram to the entire real estate industry to cut prices and make houses more affordable to the buyers, the developers’ associations — National Real Estate Development Council (NAREDCO) and Confederation of Developers Associations of India (CREDAI) — both responded with appeals to their members to come up with whatever cuts that are possible.
So have developers cut prices and what does this mean for the end user buyer who had been priced out of the market during the boom years?
Rohtas Goel, Naredco chairman and CMD of Omaxe, says his company is offering 1-5% discounts to existing clients who have not defaulted on any payments. The discount is applicable for the Noida and Greater Noida projects. This discount would be offered on the balance amount to be paid. The discount would be applicable for about a year or according to market conditions.
Future projects in Noida, Faridabad, Ludhiana, Indore and Chandigarh, which are to be launched in 25 days or so, have discounts of between 5% and 10%. Affordable housing projects, the first of which is to be launched in Indore on January 26, come with a 15% discount.
Explains Prodipto Sen of Alpha G Corp, “We have not cut prices per se. But even before the FM’s appeal, we had launched a special category in our Karnal project where defence officers and public sector undertaking employees had been offered price discounts. This worked very well and we were overwhelmed by the response to our offer. So the price discounting is often market-linked rather than because of a specific appeal. After all, the developer has to factor in the cost of land, debt servicing and construction.
The appeal by the developers’ bodies has evoked mixed response across the board. Explains Pradip Jain of Parsvanath Developers, who is also a part of Credai, “We have not specified who has to cut how much. Some may have already cut prices according to market conditions. We can’t force them to cut prices again.” Jain maintains that he feels it is difficult for developers to drop prices on existing projects. New projects with lower specifications, sizes or facilities can be launched at lower prices.
“In our Greater Noida project, for instance, we had launched premium projects with high-end specifications. To suit the clients’ affordability today, we will launch the next round at lower prices with lower specifications such as tiled or stone floors instead of Italian marble floors.”
Kumar Gera, chairman of Pune-based Gera Properties and chairman of Credai, says it is important to understand what the association had issued in its appeal. “We had talked about five agencies that need to cooperate to bring down prices — the developer, government, material suppliers, service institutions and financial institutions. Simply dropping prices does not trigger sales. The fence-sitting buyer then waits for prices to fall further. The decisions to tinker with prices are largely on a project to project and location to location basis. The only reason for cutting prices is to impact the sentiment in the market and change the mood which will trigger buying.”
Suresh Jain of Vijay Shanti Developers in Chennai says prices had come to realistic levels even earlier because of market corrections about three to four months ago. Properties on the outskirts of the city that had been launched at about Rs 2,600/sq ft and progressively raised to Rs 4,300 per sq ft have come back to the launch price. This is a realistic value. However, if the government too can match this realism with a reduction in stamp duties and service tax that would help trigger sales.
Says Jain, “We are a group that has traditionally focused on the mid-segment buyers. That consumer is still worried. Earlier, getting a loan was not a problem for him. Today, even when loans are expected to be in the range of 85% of the published prices, many banks are only lending about 60% of the value. That leaves a deficit of 40%. If the government agencies can match the developers’ efforts with some financial trigger, it would help boost the markets.”
A West India-based developer who did not want to be quoted said they were reducing rates on a case to case basis. “Where the project had already sold almost 90%, we do not reduce rates but if a project is just being launched we have offer discounts between 2% and 15% according to the merit of the project, the location and various other factors.”
Ultimately, the rate cuts are not altruistic at all. The developer needs to cut rates to trigger sales as much as the government wants them to do so. However, policy measures to boost finance to the sector too may be required before the reluctant consumer is converted into a buyer.
Source: The Sunday ET, 30th Nov, 2008
Author: jayashree.kurup@magicbricks.com
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