Thursday, February 14, 2008

Jilted real estate sector looks forward to RBI rate cut

The real estate sector that has been rocking in recent times, is now in news for the wrong sentiment. The Reserve Bank of India’s decision, not to cut interest rates has shattered the dreams of real estate companies that are already facing the brunt of a housing industry slowdown. The high cost of mortgage financing is stifling the sector.

RBI decision to keep interest rates unchanged in its third-quarter monetary policy review has left some developers and investors alarmed. A larger chunk of real estate companies was expecting a cut, especially in the backdrop of slowing home sales in major cities in the past few months.

Developers, however, differ regarding the depth and reach of RBI’s move. “The slowdown in transactions in residential sector is seen majorly in metros where the prices had gone fairly high. The small cities i.e. Tier II & Tier III cities, are not seriously affected by the bank rates, as the demand in the cities is much higher than the metros,” says Sanjay Mathur, Head Marketing of Pearls Infrastructure Projects Ltd

Interestingly, Avnesh Sood, Director, Eros Intercontinental, has a completely different take on this. “Slowdown is far from the metro cities. This is being seen more in non-metro cities. Speculation is minimal in metros as there are genuine end-users. In smaller towns, small and medium developers have already resorted to price correction but they cannot go any further on corrections due to their scale of operations”.

There is no doubt that the residential segment is seeing a fall in sales and a price correction. But large developers with good cash reserves, will not resort to price correction. It is the suburban & non-metro locations that are facing a slowdown. Unchanged rates will trigger another round of correction and developers will have to come up with innovative schemes like “Book now & pay later on possession” etc.

But opinions differ. “A severe price correction is still far off and may not happen at all. Demand is not exactly non-existent. As developers, we are quite optimistic that rate changes in the future will trigger increased sales activity and there will be decent growth between 2008-2010, as endusers continue to pickup property,” adds Sood.

The way forwards would probably be to focus on the affordable quality housing segment for the lower middle class, in the next 2 years. Developers and government bodies should join hands to focus on devising ways to increase the supply of middle income group housing.

Realty companies dole out sops to woo buyers

Economic times reports
NEW DELHI: Call it a silver lining in the bearish market. Your dream home may become cheaper than it appeared earlier. With buying activity at a low in the residential market, realty developers are introducing scheme like EMI holidays (between booking and possession of property) to spur demand. Players such as BPTP, Era Landmarks, Parsvnath Developers, Pearls Infrastructure and Vipul have declared incentives to woo buyers.

Recently, a slowdown in property transactions and a correction in prices have been witnessed due to high interest rates and escalating land costs. “It’s time to be more realistic after having enjoyed all the optimism in the past. Incentives to attract buyers in this segment is definitely needed now,” Eros Group director, Avneesh Sood said.

Vipul’s vice president (sales & marketing), Brijesh Bhanote supports the argument. “The schemes are definitely a result of the negative market sentiment,” he said. The company will soon come up with a subvention scheme in which it will bear part of the cost of interest on customers’ loan.

Parsvnath Developers is offering a scheme at Parsvnath City in Sonepat where a buyer can just pay 15% of the amount and relax till the residential apartment is completed. No EMI will be sought till possession. A similar scheme has also been initiated by realty player BPTP — the customer needs to pay only 15% of the basic sale price and no EMI for the next two years. The company will pay interest to the bank during this period. Says managing director of BPTP, Kabul Chawla, “Such offers are in demand now. These schemes have met with an encouraging response from our buyers.”

Points out Omaxe vice president (marketing), Vineet Nanda: “It’s not exactly slowdown; most of the real estate developers are offering subvention schemes as the focus is shifting from investorbased customer to the end user.” Omaxe does not have any such scheme at present but might offer a subvention scheme in the near future.

There are other offers as well. Era Landmarks is offering a combination of schemes such as assured returns on investments, fully furnished homes, priority location for second booking and discount in other Era group projects. On the other hand, Pearls Infrastructure is offering a marginal discount to buyers and also special rates in bulk booking to its corporate clients. Pearls Infrastructure’s marketing head, Sanjay Mathur admits that the low market sentiments has been one of the reasons to introduce such schemes.

Going forward, one can expect more schemes and incentives from the realty groups due to the emergence of newer players in the market. Anshuman Magazine, chairman and managing director of global real estate consultancy CB Richard Ellis, aptly sums it up: “There will be adjustments in the times to come. Growing competition in the sector will ensure price correction as buyers will have more options.”