Realty cos fight shy of price cuts

Real estate companies seem little inclined to listen to the government’s call to reduce prices. Even as realty firms such as DLF, Parsvnath and Emaar MGF demand rollback of taxes, they are reluctant to commit any price cut.

An association of developers, Confederation of Real Estate Developers Association of India (Credai), has asked member developers to reduce prices, but no one seems willing to announce any cuts.

“The government has imposed a number of taxes on the real estate sector. It needs to roll them back,” said DLF chairman KP Singh. He, however, didn’t make any commitment on price cut. “Prices are a function of demand and supply. Today, supply is far ahead of demand,” he said, adding that housing demand will pick up only after interest rates are brought down to 6-7%.

Most developers are banking on the possibility that the Reserve Bank will slash rates that will in turn bring home buyers back into the market. Many developers don’t think it is possible to slash prices.

Delhi-based Emaar MGF feels lower interest rates and an improvement in general economic sentiment are the answer to revive residential market, not price cuts. Emaar MGF managing director Shravan Gupta says several micro-markets across the country have already seen a correction of 20-25%.

“We have already cut prices, which have brought our margin down to 15% from 30% last year. If we cut prices further, our margin will get wiped out,” said Mr Gupta.

Parsvnath Developers chairman Pradeep Jain, too, feels prices are unlikely to come down, even though builders may focus on small-size homes to bring down overall cost. “The ticket size will get smaller for making homes more affordable. But per square feet rate will not come down,” said Mr Jain. He is the president of the Delhi chapter of Credai, which gave a call to its 3,500 members on Wednesday to reduce prices.

There is a wide spectrum of views among developers on price correction in the residential market. Even as Emaar MGF’s Mr Gupta says a price correction of around 25% has been seen in several micro-markets across the country, Mr Jain of Parsvnath says prices have remained stable. Another Delhi-based realty firm Omaxe CMD Rohtas Goel says prices have reached ‘rock-bottom’ by having corrected up to 40-50%.

The correction, developers say, is not with respect to the rates at which transactions were made in the past. “There is no benchmark to compare rates of new launches. We can only compare it with our estimates of prices, which similar projects could have fetched in good market,” says Mr Gupta.

Therefore, price correction, as mentioned by developers, remains debatable. Developers say price correction can be seen only in new launches, as old buyers will not allow builders to reduce prices in an ongoing project.

4 Comments

  1. REMED FERNANDES
    Posted November 23, 2008 at 6:11 am | Permalink

    Realty cos fight shy of price cuts

    During the hay days the developers only focused on luxury projects responding more on the Foriegn Investment likes and completely ignoring the local demand for affordable houses. This has resulted in a complete imbalance.
    The existing and current projects are not ment for the masses of India and as a result even though there is huge demand for houses the supply is nil.
    Thus the developers will have to sell at more reduced or I should say at rather affordable prices else sales will never be seen resulting in more and more defaulters as time spins on.
    Already the list of defaulters have started adding up if we look at the Bank records.
    The Developers should WAKE UP and act accordingly to what the situation demand before its too late

  2. nikhil
    Posted November 24, 2008 at 3:46 am | Permalink

    wanted the contact details for future stories]

  3. Prabha
    Posted November 26, 2008 at 12:39 am | Permalink

    No one will buy in next two years.. let them realise that they can’t fool the public anymore.

  4. Money Money Money
    Posted November 29, 2008 at 4:25 am | Permalink

    I don’t get the point, why can’t they cut prices. Many real estate companies in Delhi are quoting lesser prices, whereas builder in Mumbai don’t seem to budge. People are not ready to purchase property due to recession. Houses in Canada are going at 30% discount due to bad economic conditions.

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