April 2010

Even as realtors are happy about the rise in property prices in the last two quarters to almost the pre-slowdown highs, experts said this sudden rise in prices will not help the sector in the long run but would rather derail the recovery process of the sector, which is still looming under a funds crisis. According to a Knight Frank report, the improving economic outlook boosted the demand for real estate in the last two quarters. Beginning October last year, the cost of residential property had once again risen especially in Mumbai and the National capital region (NCR) to as high as the pre-slowdown period. “It seems that the sector has not learnt its lesson well. Developers rather than encashing this increase in demand, just raised the property price too quickly, which will hurt the sales figure,” Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj, an international property consultancy, told Mail Today. “The sector has not recovered completely. It has just moved from the crisis. But with the lending problem and debt still looming on the realtors, they are standing on the threshold of overheating too early in the business cycle,” Puri added. According to the March 2010 Property Index (MPI) of Makaan. com, an online property portal, the national property index stood at 1,117 compared to 954 in the corresponding month last year, showing an increase of over 17 per cent. “Property prices in the western markets of Mumbai and Pune rose by 29.4 per cent and 28.1 per cent respectively, and Delhi rose by 6.8 per cent,” said the report by Makaan. com. According to the portal, the prices of existing and new projects in all the Tier-I cities were increased significantly in November and December. According to the Makaan. com report, the unexpected rise in home prices led to the crowding out of buyers as they were caught off guard. This led to lower number of transactions during the January- March, 2010 period. Ever the Reserve Bank of India (RBI) in its report on the macro- economic and monetary developments in 2009- 10 released last week expressed concern over the overheating of property prices in Mumbai and Delhi. Parry Singh, managing director Red Fort Capital, a private equity fund, said RBI’s concern on property price rise could force banks to cut lending to realtors and will increase the cost of bank lending to realtors. In fact, according to RBI data, banks are cutting down on loans to real estate. Growth in lending to real estate has declined from 41.5 per cent yearon- year as on August 28, 2009 to 15.3 per cent as on November 20, 2009, and to 0.9 per cent by March, 2010. However, realtors are playing it safe. ” The sector has come out of the crisis. Demand is improving. People who were just holding up their buying decisions are now ready to strike deals. So, sales won’t be hurt even by increasing costs,” Ananta Raghuvanshi, director, DLF Home Developers, said. The sector has not learnt its lesson. Realtors rather than encashing this demand, raised the price quickly, which will hurt the sales figure. Real estate has just moved from the crisis. They are standing on the threshold of overheating too.