With a sharp decline in home sales and rising interest rates, property developers say a correction in prices is inevitable over the next couple of months.
“The festive season is the last hope for developers. If sales do not pick up, you can expect a 10-15 per cent decline in prices in the next six to eight months,” says Brotin Banerjee, managing director of Tata Housing, on the sidelines of the Ficci Real Estate summit here.
"Nothing is selling on Friday. If they do not reduce prices, how will they manage the finances?” Banerjee added.
Niranjan Hiranandani, managing director, Hiranandani Constructions, believes the probability of a correction is more in city centres than suburbs, given the sharp spurt in property prices there.
According to PropEquity, a realty research firm, the number of homes sold and registered in Mumbai had come down from 6,300 units in August 2010 to around 4,500 units in August 2011, a decline of 28.5 per cent. The trend has been the same for the past couple of months.
“If you are a real buyer and go to buy property, you will anyway get a discount of five to 10 per cent. It will get harder...I think there will be 10 to 15 per cent correction over a period of time,” said Rajeev Piramal, executive vice chairman, Peninsula Land. “But do not expect a big-bang correction.”
Rising rates and high property prices are to be blamed, say property developers and bankers. The Reserve Bank of India has increased interest rates 12 times since March 2010 to curb high inflation, prompting finance companies and banks to increase home loan rates by 250-300 basis points (100 bps equals one per cent). After softening a bit, home prices have risen by 50 per cent in Mumbai since the September quarter of 2009, according to estimates of property consultancy Jones Lang LaSalle, a property consultant.
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Joe Silva, chairman of Eredene Capital-backed Tanaji Malusare City, says there could be a correction of 20 per cent in the next one month.
“The market is holding because frontline developers are able to sustain the liquidity crunch, but it has reached breaking point...If there is an external trigger, like the sovereign crisis in Europe or market failure of individual buyers, the correction could be as high as 30 per cent,” he says.
However, Amit Goenka, national director, capital transactions, Knight Frank, believes developers cannot reduce prices by more than 10-15 per cent. “By giving high discounts, they cannot ensure good volumes, as borrowing rates are high. Developers will also run the risk of depreciating their brand name,” Goenka says. “Buyers will accept the current prices if inflation cools and rates come down.”