Home prices likely to fall; CREDAI responds to govt concern
The possibility that property price correction will see the daylight in India – many would have shrugged it off as impossible. However, there are signs that property prices may come down in the future. Nothing could have cheered up the potential home buyer more than the news of home prices coming down as property prices have been out of reach for average home buyer in India for some time now.
Astronomical Prices
Housing prices in India have shot up astronomically over the last decade. Indian housing prices have been subjected to the steepest rise in the world in the last 10 years since 2001. House prices have increased by 284% in real terms, equivalent to an average annual rise of 14% after allowing for inflation. To own a house has become so much difficult in Mumbai, that one cannot afford even a one bedroom apartment for less than Rs one crore. Prices have gone beyond the reach of an average Indian in places like South Delhi, Gurgaon and Noida, too.
The demand in India’s six main markets has declined around 40 per cent in the past one year. New project launches have seen a drop of nearly 50 per cent. If these facts imply anything, then it is that housing prices should have come down during the period.
However, in reality, it has not been so and home prices have continued to rise. In 2011, the price per sq. meter of a 250-sq.m. apartment in New Delhi was around US$4,300. In the past one year, prices have risen by 14%, to US$4,900 per sq meter. Pune registered India’s highest annual house price increase of 33.33% during the year up to June 2012. Chennai and Jaipur also recorded strong house price increases of 24.6% and 21.88% respectively. Home prices at an all-India level rose 6.7 per cent in the first quarter of the current fiscal year.
Unsold houses
The escalating prices have taken a toll on sales of residential units across the nation. Mumbai, once hailed as the Mecca of Real Estate in India, is the worst hit of all the cities. An estimated 80,000 unsold houses under construction in the Mumbai Metropolitan Region (MMR) remains unsold.
This had to do with the overall dismal performance of Indian economy and the refusal on the part of developers to check the price rise. On one hand, individual’s ability to raise money has been hit and on the other hand, developers refuse to lower prices as they argue that construction cost has been increased.
On an average, 44% of the housing units are unsold in the cities of Mumbai, NCR, Hyderabad, Pune, Chennai, Kolkata and Bangalore in the past year. As the real estate boom is being crushed under the weight of these unsold units, analysts blame the speculative strategy of builders in most of the metros.
Price changes in horizon
The rays of hope come in with Confederation of Real Estate Developers’ Association (CREDAI) asking its members to consider selling off maximum inventories at discounted prices. The initiative was taken after the Finance Ministry of India pleaded the developers to sell off mounting heap of unsold units at cheaper prices.
The plea from the Finance Ministry was deemed unacceptable by developers earlier as they reiterated that they could not lower the prices as they had invested heavily in the projects. The Ministry had reportedly told the bankers’ association that developers were sitting on five lakh unsold flats which they are neither able to sell at the prevailing high prices nor are they allowing others to buy by lowering the prices. Credai has finally responded to the concern voiced by the government and now there seems to be price correction, contrary to what analysts had forecasted.
Credai responses to govt concern
Credai has responded back to the government by stating that it is not yet late to revive the housing industry. The developers’ body says that the government should ask banks to reduce rates of interest for projects and buyers as well and create a congenial atmosphere to encourage affordable and mass housing in the country. It has forwarded an agenda to the government which covers some of the important aspects related to real estate like tax exemption, single window clearance, elevating housing sector as infrastructure/industry, issue of flow of black money into realty, etc.
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