In your interest.
Online Personal Finance Magazine
No beating about the bush.
Pankaj Kapoor is the founder of Liases Foras, a real estate research firm. He tells Moneylife that property prices are bound to fall because they have again become unaffordable
ML: What is your view on the increasing prices of residential properties? Do you feel that market sentiments have improved?
PK: From November onwards you will again see a drop in price of properties by 15%-20% as the developers have lot of inventories and on top of that they are increasing the prices, encouraged by a more buoyant market.
ML: How much of residential inventories are piled up across six cities (Mumbai, NCR Delhi, Bengaluru, Pune, Chennai and Hyderabad) in India? Do you think they will increase in Q2 FY10?
PK: In the last quarter (Q1 FY10) unsold inventories in six cities (Mumbai, NCR Delhi, Bengaluru, Pune, Chennai and Hyderabad) were about 282,999 units or 34 crore sq ft. This includes as many as 68,000 units unsold in Mumbai; 70,000 in National Capital Region of Delhi (NCR); 48,000 in Bengaluru; 44,000 in Pune; 21,000 in Chennai and 32,000 in Hyderabad. I think the figures will increase by approximately 20% in Q2 FY10. Till the time the developers do not bring down the prices, properties are not going to sell.
ML: Why are the developers raising prices if so much of inventories are still left with them?
PK: Real estate developers are ramping up the property prices in order to get higher valuation as many of them have planned an initial public offering (IPO). It is all part of a gameplan. During the slowdown from October 2008 all developers had gradually reduced their property prices by 30%. This revived the sector a bit. Initially builders hiked prices by 5%-10% just to signal the bottom and get potential buyers to stop waiting for a further decline. As the builders saw demand coming in the market, they hiked up the prices once again for higher valuation and they have killed the market.
ML: During Dushera to Diwali most developers launch new projects. How many were being launched across six cities by the developers during the last festive season?
PK: In Pune, around 200 new projects have been further launched between June 2009-September 2009. We are foreseeing the same kind of situation across the six cities.
ML: What was the price at which properties got sold and what are the prices at which the left over properties are available for sale in Mumbai?
PK: In Mumbai, properties beyond Borivali, were selling at Rs 2,000 per sq ft. The left over properties were priced at Rs 2,800 per sqft. In central Mumbai properties sold at the bottom at Rs 13,475 per sq ft and but the left over properties are now priced at Rs 24,950 per sq ft.
ML: Do you think the developers will reduce the prices of the properties?
PK: Yes. There is still a huge gap between affordability and availability. Before the balloon could have burst it is blown again. It has happened in China, Japan and even in India.
ML: Are the developers trying to short change buyers by adding too much of a load to the carpet area?
PK: Developers are offering properties on a super built-up area basis which is beyond 50% added to the carpet area. Builders have inflated figures for super built-up area. None of the builders are ready to sell on a carpet area basis. If a developer offers you 1,600 sq ft area then 800 sq ft is the actual area of the flat and the rest are the common amenities. In 2000, the super built-up area used to range between 18%-20% above the carpet area. Then in 2004 it was 35%; in 2005 it went up to 40%; in 2006 it went up again to 45% and after 2008 it is beyond 50%. It should be made mandatory to sell by the carpet area rate basis and strict laws are required to stop this. Government and banks are now coming together and are planning to make this rule (selling on carpet area basis) compulsory for all developers.
— Pallabika Ganguly [email protected]