High prices hit real estate sales in India but developers defend the hikes

Developers in some parts of India who put up their prices are now seeing demand drop as buyers refuse to pay inflated amounts.

The problem is particularly acute in Mumbai where those who experienced a revival of sales at hefty prices in the past six months are now seeing buyer resistance and sales dropping by as much as 50%.

‘On the one hand demand for land has begun but on the other demand for residential properties is slowing down,’ said Pranay Vakil, chairman of property consultants Knight Frank.

According to Sandeep Sadh of Mumbai Property Exchange in the south of the city where there are no new constructions people are deferring buying due to high prices even in resale flats. And in the suburbs buyers are unable to buy due to unrealistically high prices.’ Sadh says his clients are sitting on the fence and waiting until prices become a bit more realistic.

An increase in mortgage increase rates is adding to the problem, says Anuj Puri, chairman of Jones Lang LaSalle Meghraj. ‘One reason why sales picked up earlier in the year was due to pent-up demand from end users and investors. Demand is now stagnant and if prices go higher it will result in sales dropping further. It will be a challenge for developers to tackle,’ he explained.

Although they grudgingly accept that high property prices are leading to slower sales, developers seem reluctant to take the first step in reducing prices. ‘Sales have slowed down. Like other builders, I realise prices are high. But people seem to be accepting the rates, and bookings are happening. So, when will correction happen? I cannot say,’ said Hiren Patel of Atithi Developers.

He added that one reason for putting up prices is higher construction costs with the price of cement, steel and sand having gone up four and five fold. He denied it was greed on the part of developers. Higher prices are also affecting the resale market, he claimed.

It is hoped that a new property index will bring more clarity to India’s real estate sector. The Reserve Bank of India is to create a property housing start up index to track new residential projects in 31 major cities and measure the changes in construction activities.

The HSUI will cover new residential projects in all major cities including Delhi, Mumbai, Chennai, Kolkata and Bangalore. A spokesman said that housing start ups in a particular quarter would be estimated from the permits issued in that quarter and the various past quarters by using the rates at which the permits got converted into start ups in the recent past.

The housing index will give insights into consumer activity, as construction of new houses typically requires large investment. With the economy growing rapidly along with increased demand for housing, the index could be used to forecast demand for new houses, he added.

Meanwhile the National Housing Bank (NHB) has decided to expand its index of residential real estate rates from the five cities it currently covers to 36 cities.