Other factors that brings property down

Other factors that brings property down
The Economic Times, 21 August 2009

Namrata Kohli, ET Bureau

Recession, while being the primary cause for correction in property prices, is not necessarily the only reason. Scratch deeper, and you will find other factors responsible for correction in values such as increase in land supply/finished products, revision in specifications of buildings by developers, and increase in floor area ratio (FAR).

A noteworthy point is while all new projects are being launched at realistic (corrected) prices, many of the existing projects have also corrected their pricing. A broker cites some examples of projects in Gurgaon and Noida, "In Gurgaon, various projects under DLF, Unitech, and Vatika, which were available in and around Sector Road and Sohna Road, near NH-8, in the range of Rs 4,000-8,000 per sq ft almost 7-8 months ago, are now available in the range of Rs 3,500 to Rs 4,500 per sq ft on basic selling price." In Noida, the broker adds that projects on the expressway under Jaypee, Omaxe, Unitech, and Eldeco, were available in the range of Rs 5,000 to Rs 7,000 per sq ft, 7-8 months ago. But new projects of Jaypee, 3C, Unitech, Amrapali are available in the range of Rs 2,500 to Rs 3,500 per sq ft on basic selling price within the same vicinity.

There has been a significant price correction and this is apparent in the average values prevailing in the NCR. While in upcoming projects at Gurgaon the basic selling price ranges between Rs 2,000 and Rs 3,200 per sq ft, depending on the location/sector, in Faridabad, it is between Rs 1,500 and Rs 3,000 per sq ft, while in Noida, the range is between Rs 2,500 and Rs 3,200 per sq ft.

Developers attribute fall in realty values to something else. They feel price matrix is only determined by demand-supply equation. With global financial crisis and unabated rise in Indian inflation index, the cost of buying a house went up. Home loan interest rates also became much higher than the rates many could afford. All these resulted in waning of demand for property. According to Rajeev Rai, vice-president of Corporate Assotech Ltd, "To counter decreasing demand and to gain confidence of all stakeholders of Indian real estate, developers association like NAREDCO and CREDAI decided to bring down prices of various properties by reducing overheads and marketing costs. In some cases, ticket size of the property was reduced with reduction in size of apartment to make it more affordable for the masses."

One view is also that in bringing down prices, developers are compromising on certain specifications. According to Arjun Kumar, director of AsiaPac International India, "One can see that there has been a compromise on specifications, especially in furnishing and finishing part of the house such as wooden flooring, modular kitchen, wardrobes, fittings in bathroom, etc. Having said this, it would be wrong to say developers have started compromising on the basic structures of buildings."

Another view is that prices have come down due to increase in FAR, especially in Noida, and increase in land supply in Gurgaon and Faridabad. Says Kumar Arjun, "Gurgaon and Faridabad fall under Haryana and there has been increase in land supply because of the revision in master plan. In the new master plan, many more residential sectors have been added and licences for new projects have been approved. All this has added to the supply in market. This has of course given enough room for developers to be competitive in tight economic situation. Noida and Ghaziabad, which are in Uttar Pradesh, are witnessing an increase in supply primarily because more land have been auctioned and given to developers for group housing. The FAR applicable has also been revised from 1.75 to 2.75 and restriction on going vertical has virtually been relaxed. This has definitely led to price competitiveness."

But Rajeev Rai of Assotech argues that any addition in FAR always comes with additional charges, which has to be paid to the development authority. "In case of ongoing projects, the foundation work and ground coverage norms do not provide much scope for full utilization of additional FAR. So it doesn't have much bearing on the price level."

However, the fact is, higher FAR is what makes affordable housing possible - for instance, Falcon constructed houses on NH-8 by providing greater number of apartments at reduced sizes and by incorporating cost effective technology. According to Bhim Yadav, CEO, Falcon Realty Services Pvt Ltd, "A higher FAR not only brings in more supply to the market, it is vital for creating room for more affordable housing and control the steep rise in prices. This will ultimately benefit the common man."