Bubble gone ‘bust’, developers build on dream with free gifts

Therefore the freebies, say experts.

Jaypee Group has, for instance, offered a car for every flat booked at its housing projects in Noida and Greater Noida. In the Jaypee Greens project at Greater Noida, one can get a Maruti Swift, a BMW, a Mercedes or a Toyota Land Cruiser as gift, depending on the category of flats bought.

“If the value of a villa is Rs 4 crore and you get a Mercedes worth Rs 25 lakh, it is actually a discount being offered by the developer instead of reducing the price of the flat, or offering a cash discount,” a real estate developer, who did not wish to be identified, said. “Developers are not giving actual cash discounts because they do not want the value of property to come down — they want the real estate bubble to exist.”

A real estate expert in NCR said transactions have “literally stopped” due to primarily two reasons: the jacked-up prices on one hand, and home loan interests jumping from 7.2 per cent to 14 per cent in a matter of a couple of years. “While there is a genuine need for homes, they have become unaffordable,” the expert said. “There is a requirement for 20 million homes in the country, annually.”

But this potentially huge demand, he said, is being “killed” by the inflated prices and the interest rates showing no signs of driving down south.

Liquidity crunch hits home
Ashish Jindal, regional director at Knight Frank, a global real estate research firm, said: “One big reason for the slump in the market is the high interest rates. The kind of perks being given with flats nowadays is not just a discount but also a way to stimulate the market.”

Experts said while demand has not slipped, banks have stopped lending and that has hit the realty market. “The main source of income in the property market is from speculators but these are the people who have lost money in stocks so this portfolio has been hit,” an expert said. “The genuine customers comprise just a small fraction of the market.”

What’s worse, the expert said, banks have also stopped investing in real estate. Result: many developers, including big names, are unable to raise funds and have started cutting back on projects.

Developers also said the suburbs take the hit first, and harder, than the metropolises during slumps like these. “The problem with the market right now is developers are focussing on high-end consumers, whereas the demand is more in the middle segment,” a realty expert said. “But this is not a sustainable strategy. We know big developers are looking at targeting budget consumers over the next year.”

Tarun Mehrotra, chief operating officer, Pioneer Urban Land, said: “Most of the slowdown has appeared in projects under construction and even banks are limiting their exposure to real estate right now. So, while banks are no longer investing in housing projects they are also shy of second loans at the consumer level.”

The market, he said, is “unlikely” to pick up anytime soon but “things aren’t as dismal as they seem”.

Mohatani Goswami of Jaypee Group said: “We have been selling consistently. The scheme for car was worked out eight months ago and is a coincidence that it was launched at a time when markets are down — the scheme was planned for Diwali in any case. Such offers take time to work out as we had to tie up with car manufacturers.”

Housing for the poor
Earlier this week, Chief Minister Delhi Sheila Dikshit announced that 13,000 low-income group houses were already complete as part of the Rajiv Ratan Awas Yojana. “We have already received over 2 lakh applications for these 13,000 flats. They will be allotted within the next four or five months,” Dikshit had said. “Our plan is to construct 4 lakh such houses over the next three or four years.”