As realty market becomes tight, developers goaded to lower prices

January 27th, 2009 - 11:41 am ICT by IANS  

New Delhi, Jan 27 (IANS) After the government, it is now the turn of banks and private equity funds to urge developers to reduce property prices.According to bankers, the demand is still there in the housing segment, but the soaring property prices are keeping customers away.

“Despite an industry bailout programme and the relaxation of lending rules, constructors are refusing to cut the inflated property prices,” said Deepak Parekh, chairman of mortgage lender Housing Development Finance Corp Ltd (HDFC).

Parekh, also the chairman of a high-level task force on affordable housing set up by the ministry of housing and urban poverty alleviation, added: “There is nothing more incorrect than saying that people are not buying houses because of economic slowdown. The demand has not fallen, it’s the home prices that have not fallen enough.”

However, realtors said it was difficult to get funds for new projects as banks and private lenders were coming up with fresh conditions.

“Apart from slackening demand and a liquidity crisis, banks and private lenders are now putting up new terms and conditions for funding,” said Rohtash Goel, chairman and managing director of real estate developer Omaxe Ltd.

Major developers such as DLF, Unitech, Sobha, Omaxe, Parsvnath and Housing Development and Infrastructure have approached the banks to restructure their loans.

A senior State Bank of India (SBI) official told IANS that instead of asking for restructuring loans, developers should sell assets and slash prices to tide over the cash crunch.

“Developers are sitting tight on their assets. To overcome cash crunch, they are pushing for restructuring of loans rather than selling off assets or reducing property prices,” the official said.

Many private equity fund companies echoed the same view.

“The main problem in India is not demand falling, but affordability. Demand is still there, but developers are reluctant to reduce prices. Certainly they cannot keep on holding land. They have to reduce their profit margins,” said Anshul Jain, chief executive of the Indian arm of global real estate adviser DTZ International.

“The restructuring system is a good measure to help developers cope with falling demand and credit crunch, but it has also provided builders with an opportunity to hold on to high property prices,” he said.

Added Parry Singh, managing director of India-focused realty fund Red Fort Capital: “It’s not that we are shying away from funding realty projects, but certainly we have become risk-averse. We are lending to developers for finishing a project and not for diverting the funds elsewhere.”

Red Fort Capital has invested nearly Rs.15 billion in the property market so far and is planning to invest another Rs.1.5 billion in a Noida-based project.

“In the past, there was a huge fund flow for many realty projects but that fund was not utilised in construction. Rather, developers diverted the money for acquiring further land banks,” Said Singh.

Last month, the urban development ministry also snubbed developers for not reducing prices.

“The government is trying every bit to help the realty sector, but developers have to act accountably and cut property prices,” Urban Development Minister Jaipal Reddy said at a function here.

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