Freebies like Mercedes, BMW failing to push house sales

November 9th, 2008 - 2:34 pm ICT by IANS  

New Delhi, Nov 9 (IANS) Even freebies like Mercedes, BMW and gold medallions are failing to lure home buyers this season, resulting in a 50 percent dip in purchases in both premium and mid segments, with experts predicting distress sales in six months.The high cost of home loans, land acquisitions at high prices, a dip in demand from non-resident Indians and the general liquidity crunch are also compounding the woes of realty majors, the experts added.

“It is not that demand has declined,” said Santhosh Kumar, deputy chief executive officer of Jones Lang LaSalle Meghraj, a global real estate consultant and brokerage firm.

“There is a lot of demand in the middle segment but the prices quoted by developers are very high,” Kumar told IANS.

In places like Lucknow and Meerut, he said, realty developers were quoting as much as Rs.4 million/Rs.40 lakhs for mid segment housing which was quite unrealistic.

“Sales are just not picking up. Compared to last year, the figure has gone down by 50 percent, even when they are selling at 20-30 percent below the earlier market prices,” said Punit Saxena of the real estate consultants Axiom Estates.

“This is alarming. If the situation doesn’t improve, there could be distress sales in six months.”

According to Anil Chawla, private equity head with the $36- billion investment firm D.E. Shaw and Company, India’s realty industry was heading for a slowdown much before the current economic slump.

“Increasing demand had pushed up prices with speculators and investors jumping in to inflate the market. Eventually the situation became grim as speculators withdrew and buyers refused to pay unrealistically high prices,” Chawla said.

Developers, however, blamed the high home-loan rates for the situation.

“Certainly with interest rates at an all-time high, the middle-segment people cannot afford to buy new homes. I feel that the prices must be reasonable enough. Builders cannot just quote anything,” Kumar said.

“In next six months the market will see a price correction up to 40 percent. There is no other way out,” he said.

“Due to a liquidity crunch, the entire real estate industry looks to be in depression. As the people’s perception has completely changed and they expect further price reduction, there is a tremendous sale reduction.”

Anand Gupta, general secretary of the Builders Association of India, said people had also stopped buying since they expected prices to fall.

“As the people’s perception has completely changed, they expect further price reduction - there is tremendous reduction in sales,” Gupta said, adding: “Due to the liquidity crunch, the entire real estate industry looks to be in depression.”

“Almost 90 percent of home-buyers take the home loan route,” said Rohtash Goel, chairman and managing director of leading real estate firm Omaxe.

“As home-loan interest rates shot up, potential buyers also kept away. In the case of residential property, the rate of interest went up so high that it is keeping buyers at bay,” he added.

“We hope softening of interest rates will bring some relief to our sector,” Goel told IANS.

Companies like DLF, which reported a fall in profits during the second quarter of this fiscal, have also sounded the alarm bells.

“Real estate continues to face tight monetary conditions that has had an impact on the sector. If restrictive conditions continue, we expect the industry outlook to weaken further,” the company said in a statement.

For the premium segment, the main worry is over loss of interest among non-resident Indians (NRIs), who had fuelled the boom in the past few years. And incentives like Mercedes cars and gold coins have not helped.

“The NRIs, who were potential targets for the high-end segment, are just not interested in the same numbers,” said a senior executive of Jaypee Green, requesting anonymity. “Developers are going for fancy freebies but it has failed to attract them.”

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