India Real Estate Monitor » High Interest Rates

Parsvnath says festival sales down by half

Fri, 24 Oct 2008 14:39:14 +0000

Sales at Parsvnath Developers’ in the festival season of Diwali are down to half from a year ago, but the real estate developer does not plan price cuts to boost sales, its chairman said.
High interest rates on home loans and central bank rules forcing banks to assign a higher risk weight to real estate loans have dented property demand in India.
“There is a substantial fall, 40-50%” in Diwali sales, Pradeep Jain said on the sidelines of an industry conference.
“Liquidity is a large concern. Banks have frozen everything. The indirect message to financial institutions is not to lend.”
Analysts say property prices are still high and need to correct some more before demand picks up. But Parsvnath has no such plans, Jain said, citing rising input costs.
“We’re not going to cut prices. There is no softening of prices, the end-user demand is still there,” he said, but declined to comment on the firm’s expected sales in the fiscal year to March 2009.
Parsvnath would focus on reducing costs by reducing salaries and firing “non-performing staff,” and would speed up projects to improve cash flows, Jain said.
“We are not abandoning any project and not considering to do so,” he said. The cost cutting measures would come in within a month, Jain said.

Home prices may fall in first quarter of 2009

Tue, 21 Oct 2008 08:10:58 +0000

Potential home buyers, who have been deferring their purchase decisions, may have to wait till April-May to get a good deal.
The ripples of the ongoing financial crunch, coupled with mounting pressure from various other circles, will peak between January and March. That’s when many developers will be forced to sell the unsold stock at a much cheap price.
Anuj Puri, chairman and country head of Jones Lang Lasalle Meghraj said, “The signals are very much visible. Developers are already offering lots of freebies. I feel, they will hold on to prices till the end of the festive season. If sales are not happening in the current quarter, the Jan-March quarter will see a price crash in some pockets, and in the first quarter of the next fiscal, developers will be forced to sell homes at a much lower rate as their loan repaying capacity will be under challenge”.
He added that in the current market scenario, if developers want to bring some cash flow into their company that will happen only by selling their residential and commercial properties. “All other routes are drying up,” he said.
India’s property market has been among the hardest hit by the global financial turmoil as high interest rates and gloomy economic prospects have driven out buyers and squeezed funds for real estate developers.
Through this year, property prices have already declined more than 10-20%, though in cities like Mumbai and Delhi, prices are still too high for a middle class consumer. Developers like Orbit Corporation have already cut prices by 20% from Rs 26,000 to Rs 21,000 at Parel in Mumbai.
Broking firm Edelweiss Securities in its recent report on real estate said property prices are likely to decline by 10% in the current calendar and another 15% by the end of the current financial year.
“I feel, by the end of the year, developers will feel the real pinch of the current financial crisis. They have to cut prices to keep the wheel rolling. It would happen early next year,” said Pranay Vaikil, chairman of Knight Frank India.
Industry official said, though the rate cut by RBI will improve the confidence level of consumers, it will not reverse the ongoing trend in the market as most buyers will prefer to wait and watch.
“While the repo rate cut signals the reversal of the interest rate cycle, it might be too early to conclude on its impact on the real estate. With liquidity remaining tight for India Inc, home loans rates might see some softening by select players, as the uptake at current rates for residential borrowers is dwindling. Such a move could revive the demand in residential real estate market, that has seen sudden drop in recent times,” DTZ director Ambar Maheshwari said.
According to industry officials, many realty companies were banking on the stock market and foreign investors for new projects. As those sources dry up with the global meltdown, they will be forced to cash out, even if it means selling existing stock at a lower price.

Deloitte Haskins Sells partner Jayesh Kariya said, “Those with a strong financial background would still be able to hold on to the inventory but the ones with leveraged positions will give in to the pressure. The picture would be much clearer by the end of the current year. This period beginning from late December ’08 to March ’09 could provide a good buying opportunity for homebuyers”.

Developers are admitting that there aren’t too many transactions taking place. The festival season between Dusshera and Diwali has traditionally been the time when most families choose to move into their new homes. “Though enquiry levels are increasing, it is not translating to actual deals. Consumers are still hesitant,” said a Mumbai-based developer.

Government Relaxing Entry Restrictions For foreign Players In Hotel Construction

Thu, 03 Jul 2008 13:07:31 +0000

In a move that could help curb hotel room crisis ahead of Commonwealth Games 2010, the government is considering relaxing entry restriction for foreign players in construction of hotels and resorts. It is looking at a suggestion to bring down minimum development rule of real estate from existing 50,000 sq feet to 20,000 sq feet for hotels included in ‘mixed’ real estate projects. This would set the ground for players with smaller net worth to invest in Indian hospitality sector.
With Commonwealth Games just 2 yrs away, the Capital needs thirty thousand further rooms to accommodate an expected 1.5 lakh tourists. Similarly, other states also require additional rooms to tackle the influx of tourists in India in 2010. According to sources, the department of industrial policy and promotion (Dipp), at present, is considering relaxing entry norms in case of hotels only. However, the Investment Commission had recommended to the government to relax the entry restriction in the entire sector, which includes housing and shopping arcades as well.
The Dipp has already circulated a Cabinet note proposing waiver of two conditions — the 3 yr lock-in on foreign investment and the minimum investment criteria of five million dollar for joint ventures or ten million dollar for wholly-owned ventures. This waiver has also been sought for hotel related real estate projects.
However, the country has been seeing an asset bubble since the beginning of the current fiscal. According to realty verticals head R. Ahuja“With real estate prices heading southwards, tardy stock market, high interest rates especially for the real estate sector, the sector will continue to remain low for sometime”.

Oversupply May Bring Home Prices Down

Thu, 22 May 2008 13:05:57 +0000

Knight Frank India, a real estate consultant company, predicts more correction in house prices if the existing slowdown in residential property sales keeps on, Chairman Pranay Vakil said.
“(In) residential, there is a slowdown. The volumes of dealings are low and it is a precursor to prices going down. In a lot of speculative areas, prices have already gone down. If these things continue for further 2-3 months, it is very probable prices will come down for residential segment,” Vakil said, adding sales volumes traditionally drop in June.
His remarks come at a time when there are concerns over a probable slowdown in demand for residential real estate because of high interest rates, oversupply, and funding issues.
Real estate developers for example Brigade Enterprises had said the company observered a 20 % slowdown in house unit demand in south India in January-March.
Media reports also suggested that prices in Mumbai, Bangalore, Pune, and National Capital Region have corrected 15-20 % in the first quarter of this calendar year.
Due to mismatch in demand and supply on commercial office space, rentals are likely to remain high for further 6-12 months, Vakil said.

RBI’s judgment has spooked real estate cos

Wed, 30 Jan 2008 07:10:21 +0000

MUMBAI: The Reserve Bank of India’s (RBI) assessment not to slash interest rates has spooked real estate business facing the brunt of a housing business slowdown caused by the high cost of mortgage financing. RBI, on Tuesday, decided to keep interest rates unchanged in its third-quarter monetary policy review. Real estate companies were expecting a cut, especially in the background of slowing home sales in most important cities in the past few months.

”High interest rates are a serious concern as far as property market is concerned. There was some hope that the rates would be lowered today. However, the impact will depend upon the section and the demand-supply scenario there. The effect on Mumbai where the supply is limited will be minor,” Godrej Properties managing director Milind Korde said.

Buyer fighting and a sequence of interest rates hikes previous year put the brakes on home sales last year. Middle-class family put off purchases after considering prices break all records in most important metros. ET’s report, on Tuesday, cited RBI data to illustrate that home loan sales fell 39% in April-November 2007 while loans to developers eased by a fourth to Rs 12,563 cr.

Real estate shares fell after the policy. Lower rates help the real estate industry by spurring consumers into buying houses. Realty stocks like DLF, Puravankara Projects, Indiabulls Real Estate fell slightly at about 1%. The hardest hit were companies such as Unitech, HDIL and Omaxe whose shares fell down 5.59%, 5.47% and 2.12% respectively. Sobha Developers on the other side, closed at Rs 772.75, up 2.02% from the previous close.

“We were expecting at least a 25 basis point rate cut on Tuesday so that the feeling of possible home buyers turn positive, which in turn will help the developers to sell more residential units. The home sales are currently down now, but it doesn’t indicate that the developers will slash the prices,” said Director, Runwal group, Sandeep Runwal.

Jones Lang Lasalle Meghraj, chairman & country head, Anuj Puri said as the rate remain sluggish, high levels in interest rates will carry on and the impact will be felt mostly in the residential sector. This may also compel developers in some regions to sell their products at lower rates.

“Because of the subprime disaster in the US, US Fed (the Federal Open Market Committee) reduced the interest rates by 75 basis points. This naturally has created a wide gap between US and Indian interest rates, leading to arbitrage chances in the economy. US investors not only get the currency approval returns, but also higher interest income,” he said.

He added that if it occurs, there will be considerable addition to liquidity in the Indian economy. This may in turn fuel further currency approval, hurting exports. Thus, this was a strong case in favour of limiting
interest rates.