Friday, March 20, 2009

Phenomenal fall in real estate prices

From here

Real estate market in India is trapped in a vicious cycle of plunging prices. With the bottom nowhere in sight, potential buyers do not want to try and catch a falling knife, says Pranay Vakil, chairman, Knight Frank India, a property consultancy firm. "They are expecting a further cut in prices, while developers themselves have been dropping prices, anticipating an increase in sales volumes." Rajneesh Chhabra, a property broker based in south Delhi, says asking rates are down 30% from their peak, but it's still almost impossible to find a buyer. "Financiers have disappeared from the market and those dependent on bank loans do not buy property in south Delhi," he says, adding that deal volumes have shrunk by more than 95% from their peaks about a year ago.

With the financial year drawing to a close this month, cash-strapped real estate developers have already cut prices by an average 40% in all their upcoming projects. "I expect prices will soon come back to the 2003-04 levels, when rates were hovering between Rs 12,000 and Rs 17,000 in upmarket areas like Malabar Hill," says Mumbai Estate Agents Association president Yashwant Dalal. In Malabar Hill, the most expensive home address in India, prices have fallen by a fourth to Rs 25,000-45,000 per sq ft, depending on the age of the building and amenities. Ten months ago, actor Vinod Khanna offered to pay Rs 1.25 lakh per sq ft for a 2,500 sq ft apartment in the ultra-luxury El Plazo housing society in the Hanging Gardens area of Malabar Hill. "Now the rates are in that area (Hanging Gardens) are around Rs 70,000 to Rs 75,000 per sq ft. Similarly, in Pedder Road, rates are around Rs 45,000 per sq ft," Mr Dalal says.

A London-based Indian national acquired a 3,475 sq ft property at NCPA Apartments in the Nariman Point area at Rs 97,842 per sq ft nearly six months ago, but rates there are almost half that now, says a south Mumbai property dealer. In central Mumbai's Worli and Lower Parel areas, rates are down to Rs 12,000-18,000 per sq ft, while in Bandra they have fallen by more than a fifth to Rs 15,000-25,000. Where price drops have been of the order of 50%, buyers appear to be showing interest. "We are quoting Rs 16,000 per sq ft for our new project in Lower Parel and the initial response has been positive," says Orbit Corporation finance director Ram Yadav. A year ago, property prices in this area were over Rs 35,000 per sq ft.

Properties in the heart of the national capital on Prithviraj Road, Aurangzeb Road, Amrita Shergill Marg, Jor Bagh and Golf Links, which have seen deals involving industrialists such as LN Mittal, Naveen Jindal and GM Rao as well as film star Shah Rukh Khan, are now struggling to find buyers. A 11,250 sq ft home in Golf Links, which was purchased for Rs 70 crore, is now available for Rs 50 crore, but there are few takers. "Earlier, financiers used to buy homes. Now, they neither have money nor the hope that they will be able to sell it at a higher rate and so have just withdrawn from the market. End-users are rare and they only negotiate, but don't buy in the expectation that prices will fall further," says Neeraj Chopra, a Dwarka-based property broker.

In India's technology capital Bangalore, prices have fallen by up to 25% in some areas, a recent Morgan Stanley report says. DLF, India's biggest real estate company, cut rates by about 30% at its upcoming project and the company sees prices falling further. Irshad Ahmed, president of Irshads Property Matters, says that in suburbs such as Whitefield, Outer Ring Road and Sarjapur Road hard bargaining can result in final prices, which are 30% lower than card rates. Property dealers and builders are also lining up an array of discounts and freebies to try and clinch deals. The Gateway project by developer Brigade in Malleshwaram, one of the oldest localities in town, is quoting at Rs 5,090 per sq ft against Rs 5,790 per sq ft last year.

But there is scope for negotiations, depending on which flat is chosen and the mode of payment, says an official of the marketing team. Second-sale rates at Gateway are Rs 4,700-4,800 per sq ft, according to a property dealer.

In Bangalore's downtown area, the Mantri group's upmarket Altius complex, which has only one apartment to a floor with a current market price of around Rs 14 crore, there aren't many units available for a second sale. A city broker says that since there are no other projects that open up to views of the city's lung space, Cubbon Park, the price will hold. But the number of people showing interest in buying has dropped, he adds. However, in the upmarket areas of Chennai there have been no considerable price drops. In Chennai's Arcot Road, Purasawakkam, Thiruvanmiyur and Valasaravakkam areas, rates still hover between Rs 4,700 and Rs 6,600, about the same a year ago, a dealer says, but prices have fallen by 20-30% in the suburbs.

In Kolkata, prices have fallen from their peaks touched in mid-2008 and hover around levels seen at the beginning of the year. In areas such as Ballygunge Circular Road, Sunny Park and Queens Park rates, which were Rs 8,500-10,000 per sq ft in January 2008 jumped to Rs 13,000-14,000 in June-July before dropping to Rs 9,000-11,000.

"Prices in the city's posh areas, including Ballygunge Circular Road and Queens Park, had surged because of limited supply, but they have been hit now. Areas like Prince Anwar Shah Road, Behala and Lake Town remain unaffected, as real estate prices in these areas never reached unrealistic levels," says Jitendra Khaitan, CEO of real estate consultancy Pioneer Property Management. Sumit Dabriwala, managing director of property developer Hiland Group, says high-end residential properties, which were being sold at Rs 12,000-15,000 per sq ft last year, are averaging Rs 9,000-10,000 per sq ft now. "On an average, properties in upmarket areas have seen a 10-15 % price reduction in the premium category," he says. A few banks have cut home loan rates in recent weeks, sparking hope that sales will pick up in the quarter beginning April, rescuing the property market from its downward spiral. This could be a crucial period, as the impact of the ongoing financial crunch is expected to peak by then.

20 comments:

Anonymous said...

No. The 300% to 400% run up in prices during the mania was phenomenal. What we are witnessing now is just the beginning of regression toward the mean. Knife catchers can prepare to sacrifice their savings. Wake me up when mainstream media is quoting 60% to 80% down from peak.

Anonymous said...

I'm yet to see a downward trend. Just today, I called Abrol Builders to inquire about their upcoming project in malad west. The quote was 7000/ rs per sq.ft . which was same as last year around this time. Prices may be coming down elsewhere, but in Mumbai they seem to be frozen.

Cool Head said...

June 2009 may see some shakeups. This is because many banks have been arm-twisted into increasing the time frame after which a loan becomes an NPA. Many builders have got such extensions. Many people buy houses during April-May to coincide with the beginning of the academic year. Hence if sales do not take place in Apr-May, the loan extensions would have also reached the logical end and the elections will be over. So then the fun may really start in the monsoons.

Gadadhari_bhim said...

Mumbai:12,000 flats up for sale on EMI defaults

For the full story click the link above.

Excerpts:
In Mumbai and its suburbs, an estimated 12,000-20,000 flats and homes are in the process of being notified, seized and auctioned off as home loan borrowers stop paying their monthly EMIs in a downturn. Dreams of owning a home have gone sour for thousands of families.

Anonymous said...

Housing Inventory & Non performing loans are now worrying builders & banks. If the same would have bought by us, both would be very happy. Yes, bank can do an arm twisting activity with home buyers(common man) but they can’t do anything with builders. Banks are not willing to lend more than 12 months to builders but they are very happy to lend at 12% for 20 years to common man. Now it’s clear where our lifetime earnings will go.


“Hence, even if prices dropped by around 30 per cent in certain pockets, developers will have to reduce prices even more substantially to clear their inventories. Only then will the demand for home loans pick up,”

http://www.business-standard.com/india/
news/banks-tell-realtors-to-cut-prices-clear
-inventories/351623/
“Battling mounting debts, developers are left with little option but to find end-users to sell their flats. The gap between affordability and pricing is narrowing,” Kapoor said.
http://www.expressindia.com/latest-news/
Realty-check-53-homes-built-in-6-metros-
since-07-unsold/436827/


So guys let it fall then only pick up, minimum 50% price cut is guarantee.

Vulture.

Anonymous said...

Vulture mama,

'So guys let it fall then only pick up, minimum 50% price cut is guarantee'.........

Can you tell us when this will happen. I am seeing no signs of falling from andheri to borivili.

Venkatesh Babu K R said...

I'm still waiting for fall in price in Bangalore ... The prices are still too high to buy any property.

DLF apartments are in such a remote location in BLR here that the price should be around Rs. 500-700/- per sq.ft for a descent purchase.

Anonymous said...

Can you please describe, how you inquired about the apartment prices & which builders & projects? The folks from that area can comment on the price trend.

As I am not tracking each area & locality for price trend, I can’t predict exact date. If you have some particular project in your mind, then again you have to consider the local factors.

The 50% price cut guarantee is average housing price correction on national level. At least next 2 years have negative outlook for RE.
If you are following this blog & postponed your buying decision, you have already made 10% return last year. If you are still convinced that time is not good, you will make another 10% return on your down payment money. Plus the lower interest rate & nothing to loose. I don’t see any reason for being impatient.

Please ask yourself following questions.
Do you have fear that prices will go up in next month?
Are you convinced that now there is no downside risk?
Are you sure that economy is going to bounce back so you will start making same money as you made a year ago?

So guys let it fall then only pick up, minimum 50% price cut is guarantee.

Vulture.

Anonymous said...

@Cool Head...good point

Hence if sales do not take place in Apr-May, the loan extensions would have also reached the logical end and the elections will be over. So then the fun may really start in the monsoons.


So let us wait until the elections/timeline for not classifying the bad loans as NPA are over

Anonymous said...

There is just too much sound and fury about falling prices. If you go by the sensational news and blogs like these, 30-40% correction has already taken place and much more is to follow. What a joke!

Do this exercise: Ask anyone who is looking for a house for last 2 years and try to see how much of a discount they are witnessing in their favourite properties. The results will disappoint bears. The only thing coming out of this is developers are launching new projects with smaller flats, reduced amenities and possibly lower quality. That's why the prices of new flats are marked down. If you call it correction or crash, then congratulations to you (Vik and his cohorts). We don't want any part of these new flats. Thanks but no thanks!

Shriniwas K said...

I just found out about a row house project in Pune quoting 58 lakhs @ roughly Rs 2400 Sq ft in Pimple Saudagar (Aundh Annexe). At peak it was 3500 psf. If the trend is to be observed in 1994-1996 boom Aundh etc reached 2500 Rs psf fell to 1500 in 1999-2000 and peaked to 5500 and are now around 4000 is. In Pune I think the bottom for areas like Pimple Saudagar, Wakad, Sus will be 1500-1800 Rs and not lower. I am willing to buy if the Builder drops to 36 lakh for a row house but I know they will ask for full cash with no guarantee of delivery of house.

Common Man said...

Really liked the comment that a crore is now back to being important, after the way prices went up in the last few years.

I have been visiting a number of projects in Central and Harbour Line areas in Mumbai, and have seen a good amount of correction in the prices, although it is always couched by "saamne aake baitho toh kum karenge."

Some of the principles which I intend following in purchasing a property:

1) No Under Construction Projects - No builder seems to be immune from construction risk, and it is no secret that there is a severe liquidity crunch on. Clearly, except for a few builders who may have internal accruals, there is a big risk in going for pre-launch or under construction deals.

2) Builders are under huge liquidity crunch. Evidence the rush of builders to launch "affordable housing" projects in back of beyond areas of Thane, Dombivli, etc. A lot of people seem to be getting sucked in, because they havent seen prices like these in a long time.

3)During the boom years, builders seemed to be able to get away with selling anything, literally anything. Case in point, Chembur - Most buildings are in average locations (located next to slums, cemetaries, factories, etc.) have less than average facilities, are poorly designed. In fact, for these very reasons, these buildings are more or less empty.

4) Extremely important to verify title and do physical inspections. For eg., the sales person at Kalpataru Aura mentioned that one building was very close to completion, and upon inspection, there was no lift installed yet, no tiling, therefore clearly at least 15-20% was still pending, if not more.

4)Apart from agreeing with various comments made by others on this forum, there are one or two key points to be thought about. One, is your source of income secure? Unless there is a clear sign that this recession is behind us, do i want to use up my money to buy an asset when I could continue renting? What if I lose my job, or my salary is reduced. Not uncommon, WIPRO, TCS already have done so, most companies have stopped increments.

Two, In next week / month / year, do you see a major event which changes the situation? If not, then during this period, prices will not increase, even if they dont reduce. hence there is no need to hurry in closing any deal.

5) There will always be projects which are doing well, or which are fully sold, etc. No point going for the last flat, which has the worst view etc just because thats the only one available. Of course, the reverse is also there, sometimes you know that this one's the one, no matter whether you like the price or not.

All in all, these are fantastic times for buyers! I suggest that each of you should study the market and the available projects,the obvious difficulty of course being the lack of information, which is why the builders / brokers have successfully ramped up prices so well.

Anonymous said...

Anon@10:12 PM

If you did the exercise, why don’t you share the findings with details about area project & rate?

You never explained the reason for desperation. Don’t you have any rented apartment?

Anonymous said...

http://wealth.moneycontrol.com/columns/buying-home/a-real-estate-crash-is-good-for-you59-and-india-/12612/0

Anonymous said...

SBI Bails out Builders in India

Common Man said...

"You never explained the reason for desperation. Don’t you have any rented apartment?"

What does that mean? COuld you explain?

"If you did the exercise, why don’t you share the findings with details about area project & rate?"

Ok, details:

Chembur

Everything was 7.5k and above. Now uniform 7000 (except Diamond Garden - about 10k)

Raheja Acropolis - Aphrodite building - Two months ago - 8600. Now 7200.

Remaining buildings in Deonar - havent checked, but have to trade down compared to Raheja.

came across this fantastic construction in Deonar, problem was all apts were 2200 sq. ft. Normal times, would have been a 9-10k building, was quoting 7.5-8.5. Not much available though, apparently.

Central Mumbai

Have only started research here.

Ashoka tower, Parel - Peninsula Project, Quoting 20k, Investor at 18k

Ashoka Garden, parel - Another Peninsula Project - Was 14000, now magicbricks has a seller at 11500.

Dosti Flamingoes - 10k, down from 12-14.

Cool Head said...

Common Man,
Here's to add to your database. A colleague was shown a new complex coming up at Thakur Village Kandivli, in the "luxurious" category. Builder says 5999 discounted from 7500 a few months ago. Broker signalled that if serious can be had for even 5500, my colleague is angling for about 4000.

miami beach apartments said...

This details have helped me to realize more things regarding the fall in the real estate prices and their measures towards it.

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