Prices may fall due to low offtake putting developers in a tighter spot

While prospective home-buyers are keenly waiting for the tumble, developers may be losing sleep. With fewer registrations and failure of aggressive joint ventures, builders now have to concentrate on the consumer.

A recent Prabhudas Lilladher report says that new launches in Mumbai, along with other factors, can trigger a price fall. Year-on-year, sales registration are down 13% and 25% month-on-month at 4,427 in January. The report adds, “The city’s realty scenario is interestingly poised post the conclusion of the BMC elections and clarity on new DCR rules emerging in the last two months. A number of projects which were stuck at the approval stage last year are likely to be cleared, paving way for a large number of launches hitting the market. At a time when new launches during the festive season received a tepid response as affordability issues continue, a large stock of new supply could act as the trigger for the much anticipated price reduction that buyers have been waiting for in the Mumbai realty market.”

Pankaj Kapoor, MD, Liases Foras, said, “The decline in registration means that even the secondary market is not working. The primary supply already had a problem with high price, but now, even the secondary market has failed to perform.” Currently, Mumbai has 1,05,000 unsold units, which translates into 112 million square feet of area. Prabhudas Lilladher says that lease registrations have gone up by 10% year-on-year and 8% month-on-month in December.

The report also says that the DCR revamp, which said spaces like balconies, terrace, etc, are to be included in the FSI, have also played a role. “We could see more land deals happening as developers are now sure with the introduction of the new DCR of how much they can build and sell. We are already seeing media reports of possible land deals by developers like HDIL which is looking to sell off land to pare debt levels,” it says.

Moreover, it looks like developers are finally returning to construction, instead of buying and selling land. According to a VCCircle report, companies like DLF and Unitech are aiming to scale up their construction activity. Both the companies have attributed their poor performance in the last quarter to “falling behind schedule”.

However, some experts think the return to construction has been prompted by political factors and failure of controversial joint ventures. Unitech and DB Realty may be in for a particularly tough time. Telenor, the Norwegian major which had tied up with Unitech for mobile telephony services, has recently called it quits after the Supreme Court cancelled licenses in the second generation (2G) case ruling. Dubai-based telecom major Etisalat has also decided to shut shop in India and bid farewell to its partnership with DB Realty.

“There is definitely going to be an impact,” said a sector commentator. “These realty companies have been performing badly in the market for long. In 2008, the sector was in a bad shape and companies were on the verge of collapse. They entered into partnerships with companies which helped them stay afloat. Even with bad financials, they could buy and sell land and speculate because they had financial backing from their partners. Now everything has blown up in their faces, and their partners are dumping them. They have to turn to the consumer for money. And it is going to a have considerable impact on the market.”

DB Realty was trading at Rs88.90 on 22nd February, a 24% decline since 23rd February 2011. The DLF scrip increased by 8% over the last year, and Unitech was trading at Rs32.55, 8% below its price on 23rd February 2011. Currently, DLF’s debt stands at Rs15,059.55 crore while Unitech and DB Realty’s are Rs5,550.66 crore and Rs175.43 crore respectively.