Saturday, March 29, 2008

Pune Property Market Is Steadily Witnessing A Slowdown: say brokers

By sachiv, Section Real Estate
Posted on Fri Mar 28, 2008 at 10:40:11 PM EST
Stock market crash, recession in the US, increase in loan rates, reversal of demand-supply, investors moving out, all this or perhaps the fact that what goes up must come down. It could be labelled any of these, but there is little denying the fact that the Pune property market is steadily witnessing a slowdown of the kind not seen in the recent past.

From galloping at an almost manic pace over the last couple of years to a state when there is a decisive lull in the market, the real estate scene-like it's happening in neighbouring Mumbai and also Gurgaon and Hyderabad- seems all geared for a reality check.

"Business has gone down for us by at least 20 per cent in the last two months. It's the same scenario in cities like Bangalore and Hyderabad according to colleagues and there seem no signs of it picking up very soon," said Kshama Ganguly, real estate agent.

"A year ago, a builder told the customer to take the rate being offered right then or pay more Rs 200-300 after 15 days. Last week I negotiated a deal for a client in Wakad where the rate was being cited as Rs 3,100 per sq ft and the developer came down to Rs 2,900 without much ado. A builder who's coming up with a premium apartment at Prabhat Road had launched at Rs 9,000 but has now sent word that he's willing to book at Rs 8,500," she added.

Col (retd) A K Ahuja, real estate agent and member of the managing committee of Estate Agents Association of Pune, agreed. Builders who had earlier eschewed brokers have of late started to send them messages on their properties and want them to get involved, he said.

"I don't know whether this amounts to a slowdown but yes, it's definitely not as easy for a builder to sell properties as it was some time back. It was the investor segment with surplus funds that fuelled the unprecedented rise in rates. Now, with builders asking for high transfer charges and the government stipulating that properties bought have to be registered within a year, the investors are wary. This may also be one of the reasons for the sluggish market," said Ahuja.

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Rohit Gera, executive director Gera Developers however said that historically February and March are slow months as far as property is concerned. "There is a slight slackening but certainly not a cause for alarm," he said. "Builders are finding it more difficult to sell today than say a year ago but the reason is competition - a huge number of projects that have come up and customers are spoilt for choice. In the last one year the number of projects in any upcoming area have been something like 16 to 18," said Gera.

On why such a scenario is not translating into lower rates Gera said builders today are in a position where they do not have to do panic selling. "The basic rule is that even if 45 per cent of your project is sold, your construction costs are covered. Also with the RBI ruling last year that there would be no institutional funding for land acquisition, banks wound up all their dealing with developers. As a result debt levels are very low as far as developers are concerned and this has strengthened their position. They only have project construction debts which are usually covered by the time half the project is booked," he said.

Even if a third of any of his project is unsold today, he'd rather take over those apartments and put them on rent than sell them at a much lower rate, he added.

According to Rajesh Choudhary, partner Prestige developers, builders are also unable to reduce rates due to the fact that the current projects are on land bought a year ago when the prices were at a peak.

"Agreed everyone made a killing for about four years when rates kept multiplying due to market forces, but that situation is over. If everyone is waiting to see a crash, that's unlikely to happen," he said. As to how rates in Mumbai and Gurgaon have decline, Choudhary said it was because both rates and margins were so much more than in Pune.

Gera, however, conceded that the symptoms shown by the real estate market over the past few years could well be compared to a bubble. But will that bubble burst and prices come crashing down? "Not sure of that," replied the developer.


Anonymous said...

Gera had already accepted the huge margin(100- 45 = 55%) on real estate business and advocating other builders to hold on price fall. But the basic fact is about the income level which can support & justify the current price level. Due to recession(not technically but practically) in US & high inflation(7%) in India the income level has went down.
--The manufacturing activities have already declined by 20 to 30%.
--IT industry has already seen a fall in profit margin due to rise in rupee & recession in US.
--Sensex went down because the analyst sees the down fall in corporate earning.
Typically in bull’s market price hike is ahead of income rise, prices goes up in hope of increase in future income & people are ready to pay high price even it’s not affordable. That’s how the current price level has derived.
After this bull’s run, current phase is the realization phase, where market is trying to match the derived price level with income level. As the income level can’t sustain the price level there is a slump in real estate market.
The next phase will be bear’s phase which is yet to see, which will reveal the true price levels.
Every one should be aware that at the time of recession money will be scare & credit will be tight, there will be a rise in unemployment & decline in business activity. So better judge your income level for next 2years as it will be very crucial years for correction.

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