Luxury residential real estate stuck?

 

RBI might have slashed interest rates by an unexpected 0.50%. But the now jubilant real estate industry might have to take a long look at their own affairs. According to experts, if the sector is to pull itself out of the morass it finds itself in, it needs to look past the rate cut and re-evaluate pricing.

According to Anil Kumar Sharma, chairman and managing director, Amrapali group “The move by RBI will definitely enhance our economic condition. Coupled with our festive season discounts we see buyers making the most out of this opportunity. We hope to surpass the last years target during this festive season.”

According to realty tracking firm JLL India, commercial real estate is on the rise across the country. But for residential projects, the situation is far from ideal. India’s metros have found themselves with such low off-take that by the end of July this year, eight major cities alone held an unsold inventory of seven lakh units – a count that experts said would take three years to exhaust.

The situation has not seen much improvement in the following months. September end saw 84,000 unsold housing units in Bengaluru, which has surpassed Mumbai’s own dubious count. Only the National Capital Region (NCR) is ahead of others.

“High interest rates and inflated prices were the major problems. Now one is resolved. But real growth will be triggered only when builders are ready to cut property prices. If a revival is to happen in the sector, prices which were artificially moved up in the recent past in some areas, should come down to realistic levels,” asserted Grant Thornton India partner Sumeet Abrol.

According to global rating agency Moody’s Investor Service, developers will not reduce price to boost sales, rather will continue with their strategy to reduce apartment size and offer freebies.

The lack of demand is also rather obvious in the lackluster growth in prices over the last seven years.

Of the 26 cities tracked by the National Housing Bank’s RESIDEX index, only 9 cities have reported an annual price appreciation of 10 per cent or more during the period. The others have hovered around 5-8 per cent.

According to developers, with pricing already stagnant in most part of the country, it is unlikely that there could be any further downside in prices. They are also adamant that this is as low as they can go and can’t go further without taking unsustainable losses. Industry body Confederation of Real Estate Developers Association of India (CREDAI) states unequivocally that prices are realistic and now is the time to buy.

The country’s largest realty firm DLF chief executive officer Rajeev Talwar said, “Banks should pass on the benefits to the home borrowers which will mean very good for the real estate industry which has large unsold inventories.”

“The average price across India is Rs 3,500-5,800 per square foot. These are realistic prices and with the reduction in interest rates, people can now invest here. RBI has also given the hint that interest rates will fall further,” said Getamber Anand, President, Credai National adding that there is actually a shortage of four crore homes in Tier 2 and two crore houses in Tier 1 locations in the country.

Arvind Jain, managing director of Pride Group – a Pune based developer says, “There is ample demand for mid-segment homes in the country and most developers have been focusing on launching projects catering to this category.”

Anuj Puri, Chairman and Country head JLL India also picks up another trend. Smaller homes with smaller ticket sizes are selling quickly. “Units around Rs 35-80 lakh sell off quickly in Bengaluru. It is only those above Rs 1 crore that take longer to sell. Now, sales are slow only in relatively less popular locations.” The scenario, he concluded, is likely reflected across the country.

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