6 Lakh Unsold Houses in India..

Slowdown forcing builders / promoters to cut prices and dole out freebies

There are no takers for close to 6 lakh house in India, forcing builders to cut prices and dole out freebies, which many hope will herald the much-awaited correction in the home market ahead of the festival season.

With the economy in a mess, the rupee caught in a whirlwind &  the job scene deteriorating by the day, buyers are shying away from the market, leaving builders to grapple with an inventory of over 70 crore square  feet.

By end of June 2013, cumulative nationwide unsold inventory was 67 crore square feet, up 5.4 crore square feet in just one quarter, says property research firm Liases Foras.

According to the National Housing Bank's (NHB) residential housing index, Residex, 22 of the 26 cities it tracks have seen a decline in house prices in the April to June (2013) quarter.

Prices are expected to fall further, says NHB Chairman Mr. R.V. Verma. "Developers are now willing to take a haircut on their margins," he says.

There are signs the bubble will finally burst. A 1,100 square feet flat in Noida Extension that cost about Rs. 42 lakh a few months ago can today be bought for nearly Rs. 37 lakh, as the builder is agreeing to a 10 % discount.

Across town near Gurgaon's Dwarka Manesar Expressway, a 1,200 square feet apartment can be had for Rs. 77 lakh as compared to Rs. 86 lakh 6 months ago.

For a first-time home buyer, this is the right time to buy as developers are under pressure and are willing to reduce prices and also waive off charges for benefits like club membership and preferential location, h says Samarjit Singh, managing director of IndiaHomes, a venture capital-backed realtor.

In the ten years that I have been around, I have not seen prices falling like this before, he says Mr. Rajni Naggar, a real estate agent in Noida, who is advising her clients to hold their investment plans until Diwali.

There is growing hope that new launches during Diwali will happen at lower than current market prices.

Builders /promoters are already offering made-to-measure payment plans. Among the big cities, property prices have softened the most in Hyderabad (4.55 %) followed by Kolkata (4.06 %) and Chennai (2.26 %).

While property prices in the NCR fell 1.49 % in the quarter, Bangalore saw a decline of 0.92 %, Pune 0.90 % and Mumbai 0.45 %.

The situation is very grim. The industry is in the ICU, and without corrective action it could very well slip into a coma, he says Sunil Rohokale, managing director of Ask group, which manages a PE fund that invests in residential housing projects across the country. The corrective action Rohokale suggests is deep discounts, of around 20% for the mid-segment and 30 % in luxury housing, if developers want at least some of the buyers to return. Builders are adopting new strategies to woo customers in this sluggish market.

Mumbai-based Lodha Developers recently launched its new project in Lower Parel with an advertising blitzkrieg featuring Bollywood star Ms. Aishwarya Rai.

A developer selling high-end properties in Gurgaon is pampering potential buyers by ferrying them in Audi Q7s and Mercs and treating them to five-star lunches.

Another developer in suburban Mumbai is trying to entice buyers by offering an expensive international holiday. For the first time, DLF Ltd, whose name was enough to sell a project in the past, has now been forced to launch a project with a subvention scheme, where buyers pay 20 % upfront, take a housing loan for the rest and start paying EMIs to the bank only after possession of the apartment.

It has become a buyer’s market, says Mr. Lalit Kumar Jain, Chairman, Confederation of Real Estate Developers Association of India (CREDAI), the builders' association.

Agents say this is a good time to negotiate hard for better deals. The builder / promoter today is willing to throw in a 10 % discount. Push him a little more & you could get 5% to 6 % worth of freebies as well, says Mr. Sunil Kapur of  KK Real Estate in Delhi, who sells apartments for builders in Gurgaon & Noida. These freebies could include air conditioners, customised kitchens, top-notch flooring, free furniture, free parking and the likes. Though nothing seems to be working now, he says the buyer will emerge king once the economy stabilises around Diwali, he says.

Builders/promoters agree that the pace of sales has slowed considerably. Most of them were used to the idea that a project will be sold overnight. Now it is taking them longer to sell and for developers who are facing a liquidity issue, the only option will be to reduce prices.

There is demand for housing but the issue among buyers is the erosion of confidence in the economy and uncertainty, says Mr. Niranjan Hiranandani, one of Mumbai’s biggest builders. With prices of properties not rising as fast as they did in the peak years, investors and speculators had gone out of the market.

Now with the rupee’s slide, higher inflation, job cuts, increasing interest rates &  an environment of uncertainty all around, financial planning has gone awry and even end users are choosing to stay away. With the growth of India’s gross domestic product (GDP) slowing down to a decade low of about 5 % this fiscal year from a peak of 9.6 % in 2006-07, new hiring by companies has dropped dramatically over the years and so have increments -- at all levels.

The manufacturing sector saw a negative growth of 1.2 % in the quarter. Most real estate hotspots have mushroomed around manufacturing or / service industry hubs such as Gurgaon, Bangalore, Rajarhat in Kolkata, Chennai & Pune, and a contraction in manufacturing has had its negative effect on the market.

Increments across sectors such as IT, telecom, auto, finance, banking, and many others have been sub-par this year, remaining on an average between 5 % and 8 %. Add to this the high cost of housing loans. We will be cautious in pricing our new products, probably give options for simpler specifications to buyers to bring down price given that there are challenges in the economy, says Mr. Ajay Chandra, MD, Unitech, In the April-June quarter, DLF Ltd reported a 38 % fall in its net profit compared to last year.

Parsvnath's net profit dropped 25 %. HDIL net profit was down 85 % in the quarter.

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