Battle of Prices: Who'll Be The Winner?

Battle of Prices: Who'll Be The Winner?
HT Estates, Feb 28, 2009, Page 1

The battle rages on. No one knows who among the warring parties -- the developers, bankers or buyers -- will emerge winners.

When the SBI brought down the interest rate to 8 per cent, it was speculated that the move would revive the real estate market. However, if you listen to what the bankers have been saying, it becomes clear that any further decrease in home loan interest rates is difficult.

Earlier, when the RBI cut prime lending rates the bankers felt it would rev up the home loan demand. However, nothing much happened and no peaks in demand or growth were noticed. The bankers are of the opinion that the banks are working with very slim margins and a further slash in rates is well nigh impossible. Popular developers speak, too, rules out slashes in residential apartment rates, quoting slim margins as the reason. And the segment stuck in this tug-of-war comprises buyers, who are waiting patiently for this banker-developer conflict to resolve so they can go about their business of acquiring their dream homes.

"We already have affordable houses and prices are reasonable enough. Developers will not cut prices but will come up with houses that will fit the customer's bill. That means that in the near future we will see more of smaller houses with affordable prices," says Sunil Jindal, SVP Group.

"The talk of price cut should be addressed in the right manner. The point I would like to make is that price cut is not possible as it depends on lot many fac tors. The land prices have not come down, nor have the prices of other related products, so how can developers cut prices. The only thing we can do is to come up with smaller homes that fits the customer's bill," he says.

Have the banks done their bit?
The developer camp advocates that other Public Sector Undertaking banks follow in SBI's footsteps and further slash home loan interest rates. The developers also say that private banks would then automatically cut their rates as they would not want to lose customers to those offering cheaper lending rates. The bankers retaliate by saying that slow demand, more of an issue between homebuyers and builders, will increase only when realty prices come down. At a recent conclave organised by the business paper, Mint, the Executive Director of Housing Development Finance Corp Ltd, Renu Sud Karnad, said banks worked on a margin of two per cent and had recently cut down rates. What she indicated was that private banks would be then hard pressed to go for a further cut in home loan interest rates.

Should the govt step in now?
Says Navin Raheja, MD, Raheja Developers, "There is a shortage of approximately 2.5 crore houses throughout India and the major demand is for affordable housing in the Rs 22 lakhRs 25 lakh bracket. Unfortunately this segment is, unavailable for the Indian lower and middle class end-users.

Due to the economic global meltdown, the investors and speculators have vanished completely as the profit margins have come down. In the present situation, the Government should wake up and support private developers to ensure construction of affordable housing focused on actual users. The moment the Government takes steps to help the real estate sector, the housing demand will automatically accelerate, propelling end-users to pick up properties."

Taking advantage
It will take more than a drop in interest rates to revive demand satisfactorily "Real estate prices . will need to rationalise as well, and buyers will have to break out of their watch-and-wait mindset and make their purchases when corrected prices and amenable interest rates make homes affordable for them.

However, most of the buyers seem to be trying to time the market for the lowest entry point, which is not advisable, since the real estate market -- like the stock market -- cannot be accurately predicted. The point of optimum entry may pass and the best opportunities may be lost," says Anuj Puri, Chairman & Country Head, Jones Lang LaSalle Meghraj.

However, it remains to be seen who will blink first. Buyers are waiting for the developers and banks; while developers are waiting for the buyers to come forward and press the purchase button. The sector indeed seems to have entered an interesting ¦ phase.