Urban Development Minister Jaipal Reddy has told the Prime Minister that real estate companies must give up their ideas of fancy apartments. In a letter written just before the Government announced its second stimulus package on Friday,Reddy pushed for steps to give the sector a leg-up,but sought an equal commitment from it in the form of price-cuts. This (commitment) may include lowering of prices for houses and more and more investments in affordable housing, Reddy wrote.
Real estate was one of the biggest focus-areas in the stimulus package,but realtors have continued to refuse to cut property prices. This,despite the fact that the government had insisted on price-cut commitments before agreeing to various sops.
Price correction in residential segment has already happened… We are working with minimum profits and dont foresee any reduction in prices till the government intervenes again, Parsvnath Chairman Pradeep Jain said. Parsvnaths inventory on March 31,2008,was valued at Rs 1,914 crore,43% higher than in the previous year. Jain said the total unsold housing stock in the country is currently around 1.5 million units.
DLF,the countrys largest player,had an inventory of around Rs 6,000 crore as of March 2008,almost 1,155 per cent more than in March 2006. But the company is mum on price-cuts,and wants still more sops. Its not just enough to reduce prices. The cost of borrowing for the customer has to reduce. Whatever corrections happen in the residential segment,will be according to demand, said DLF group executive director Rajeev Talwar.
It is much more damaging to hold on to projects than releasing them at reduced prices. At reduced sale prices,the developer would still make money,just that profits will be lower, said Anuj Puri,chairman,JLL-Meghraj,a leading real estate consultant.
Some developers like Omaxe have started offering 5-15 per cent discounts on existing and future projects. But,said Puri,Unless prices drop by a third,the buyer will not come back. And if developers reduce prices to match market expectations,there will be a huge response.