December surprise unlikely to sustain in realty
Shukti Sarma 19 January 2012

Sales registrations down ‘only 9%’ y-o-y, PE investments coming back

Possibly leveraging on healthy transaction numbers in the secondary market, Mumbai’s real estate in December showed positive signs, with only 9% decrease on a year-on-year basis, said a report by broker firm Prabhudas Lilladher.

“In lieu of fewer launches this festive season, higher secondary market transactions may have caused the spurt in December 2011 sales,” the report says. “However, anecdotal evidence continues to suggest a continued tough time faced by the developers. We would wait for data in the coming months to ascertain if this is a reversal in trend or just a monthly blip,” it continued. In terms of lease transactions, December numbers stood at 8,444, exhibiting a flat growth of 1% year-on-year (down 2% month-on-month).

In the last quarter, some builders deflated prices, especially for new launches. The sky-high prices had repelled consumers, and since Diwali, some offers came with discounts and other add-ons to increase offtake. “When there is no money in the market, the builders have to bring prices down. With no funding, sale is their only way out,” commented a sector analyst.

However, some private equity funds are again investing in the sector, giving hope to the builders. LIC Housing Finance is planning to raise Rs500 crore for its urban development fund, which will mark its entry into the private equity domain.
The fund will be invested in companies developing affordable housing projects like IT parks, SEZ and other allied projects. Omkar Realtors, too, raised Rs250 crore from Red Fort Capital for its Malad slum rehabilitation project.

The other big investment is from IL&FS Private Equity, which invested Rs200 crore  to buy 9.36% stake in Indiabulls Infraestate, to develop a project on 8.39 acres of land occupied earlier by Bharat Textile Mills in  Lower Parel.

“The premium looks extremely high, given the oversupply in Central Mumbai  micro market, coupled with the fact that parking FSI rules have also been modified post the auction, whereby a builder is now required to pay the BMC (40% of unearned revenue) to get additional parking FSI,” the broker report said about the IL&FS deal.

Pankaj Kapoor, MD, Liases Foras, said, “The prices are still very high in the primary market. And if PE funding is available, they will remain high. The new projects may again increase their prices. But if customers stay away from such high prices, nobody profits. And it is tough then to find suitable exit points.”

1 decade ago
During teh last 3 to 4 years the prices of flats and houses in all most all major cities in India have increaseed 3 fold and 4 fold .To day a 3bhk flat (whichis the medium requirement of a family) costs between 5o lakhs to 1 crores depending upon the locality and the cities. This is too high a price to afford by Middleclass people. The builders during the last 3 to 4 years have earned tremendous profit in the housing schemes.Therefore tehy arein a positiion to dictate terms. In a project if 50 % apartments are sold the builders can sustain with the profit earned from that.Therefore tehy do not reduce the prices even if the demand is less than the supply. Therefore it is necessary that the government should put certasin restrictions whereby builders will have to sell their flats instead of keeping it vacant for long time with a view tio get extreme profits.At least a correction of 25 to 30% in prices will be taken place it is beyond the reach of middleclass to purchase a flat/house.
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