A time for consolidation and recovery

CORRECTION AND STABILISATION

Property prices witnessed significant correction across locations in the first half of 2009,after which they began to stabilise. Mumbai,New Delhi and Bangalore saw the maximum correction,ranging from 20-35 per cent from peak values. Markets such as Kolkata,Pune and Chennai saw smaller corrections,ranging from 10-15 per cent.

According to Anuj Puri,country head,Jones Lang LaSalle Meghraj,The effects of the slowdown were noticeable across the country in the first quarter of 2009. It was only towards the middle of the year that residential rates in some of the larger cities began to inch upward.

In the third quarter of 2009 prices moved up in a few markets. The improving economic climate led to revival of end-user demand. Moreover,by then developers had launched a large number of affordable housing projects that were attractively priced and elicited a good response from investors. When demand perked up,developers were quick to raise prices.

According to Sachin Sandhir,country head of RICS India,In markets such as Pune,Chennai and Kolkata,prices have recovered half of the loss from their peak levels,while in other areas such as Hyderabad and the NCR region there has only been a marginal price increase due to fresh supply coming in. Some parts of Mumbai,such as Worli and South Mumbai,have been the exception in that prices there have reportedly risen past their peak levels.

RATE HIKES BACKFIRE

In the third quarter of the year,based only on a mild pick up in sales,a few developers hiked property rates. Discounts,which had become commonplace and were substantial when sales had slumped,were also withdrawn.

In Mumbai,developers raised rates by as much as 20-25 per cent under the assumption that demand,which had revived after the elections,would hold up even at higher price levels. This assumption started backfiring towards November,which is when demand began to slow down again in the financial capital despite the ongoing supply crunch, says Puri of JLLM.

Research by JLLM found that in Delhi prices followed a more rational course. Price escalations were moderate,not going beyond 5-10 per cent even in high-demand areas. In Bangalore,too,prices remained sedate since demand from the IT-ITES sector had not yet recovered adequately. The Chennai residential market too displayed its customary conservatism.

As for the current scenario,Sandhir says: Property prices are more or less settling down to their levels prior to the economic slowdown. However,not much escalation is expected in the near future as fresh supply will balance out existing demand. Only in markets where supply is restricted could one witness a marginal upward trend.

DANGER OF INVENTORY PILE UP

Meanwhile,in the affordable housing segment,inventory has begun to pile up. To revive their fortunes,one of the key strategies that developers adopted was to launch affordable housing projects,where end-user demand tends to be greater. For loans of up to Rs 20 lakh,home loans are also available at lower rates. However,with a large number of developers jumping on the affordable housing bandwagon,supply increased rapidly. Initially affordable housing projects got a good response from buyers. But when developers started raising rates in the third quarter of 2009,sales languished and inventory began to pile up.

A REGULATOR FOR THE SECTOR

During the downturn,many developers delayed their projects with impunity,causing untold hardships to customers all over the country. This would not have happened had there been a regulator for the sector. For almost a decade now,there has been talk and a few stillborn initiatives of the central government coming up with a piece of legislation for the establishment of a regulator. Finally,there appears to be some progress.

The Union Government,through the Ministry of Housing and Urban Poverty Alleviation,has announced a Model Real Estate Regulation of Development Act. The Ministry is reworking the draft bill after receiving opinions on it from all stakeholders. It will now prepare a final draft and place it before Parliament

for approval.

According to PSN Rao,founder-chairman of National Association of Realtors NAR-INDIA,In principle,it is a welcome move on the part of the central government to bring about a model legislation for the regulation of the real estate sector. If implemented properly,it will certainly rein in developers and streamline the sector.

Finally,in a bid to revive demand,banks are doing their best to keep interest rates on home loans as low as they can despite upward pressure on rates. Several banks have launched loan schemes where the rate is as low as 8.5 per cent for the first three years. At the end of this period,the interest rate in these schemes will revert to the floating rate prevailing then.

Developers,on the other hand,have not been as circumspect. Their eagerness to cash in on the demand revival by increasing prices has the potential to stall the nascent recovery. Moreover,buyers trust in developers continues to be shaky as projects continue to miss target dates for delivery. Some projects have even been halted despite buyers having paid a number of instalments. Litigation by aggrieved buyers has been mounting. One of the best things that could happen to the sector in 2010 is if the bill for the establishment of a real estate regulator gets passed and a regulator is appointed. l

praveen.singhexpressindia.com