Vested interests in the real estate market are falsely spiking property prices. Developers and broking firms are creating a false bubble by exaggerating the improved market sentiment
The convergence of vested interests of a few developers, media houses and broking firms is creating an exaggerated bullish atmosphere in the real estate market. While realty prices have indeed moved up, builders themselves are shocked at the extent of rise claimed by the media.
“Some newspapers have been reporting that our rates for the‘Global City’ residential project at Virar have gone up from Rs 1900 per sq ft to Rs 2700 per sq ft but actually our rates have only risen from Rs 1900 per sq ft to Rs 2100 per sq ft because the building is in the process of completion,” said Boman R Irani, chairman and managing director, Rustomjee Builders.
He also added, “There is no steep spike in the rates especially by credible developers who have got a brand name and brand image to protect.”
Our sources say that property prices have only increased in South Mumbai by 10% - 25%; elsewhere in Mumbai the prices have just started moving up. According to bankers, prices of residential properties across the country are still down by 15%- 25% from their 2008 peak.
M D Mallya, chairman, Bank of Baroda said, “There is a brisk sale of flats in the Rs22 lakh-Rs25 lakh range.”
KV Kamath, Chairman, ICICI Bank, said, “People have curtailed the size of home loans and the 20%-30% drop in price has certainly made 800 sq ft-1000 sq ft apartments more popular. That seems to be the new mantra.” He also added, “People are not buying today on the basis of future income.”
Since the past four months, real estate developers have been raising funds through Qualified Institutional Placements (QIPs) and through Initial Public Offerings (IPOs) or follow-on issues so that they can complete old projects which were stuck since November 2008.
Companies like Unitech Ltd, Indiabulls Real Estate Ltd, Housing Development and Infrastructure Ltd, Sobha Developers Ltd and Orbit Corp Ltd have raised funds through the QIP route. Developers such as Emaar MGF Land Ltd, Nitesh Estates, Lodha Developers Ltd and Sahara Prime City are planning to raise a total sum of around Rs9,800 crore through IPOs—Sahara Prime City has filed its draft prospectus for Rs3,450 crore, Emaar MGF Land Ltd for Rs3,850 crore (down from the Rs6,400 crore it planned to collect last year). Ambience Ltd, a Gurgaon-based developer has filed a draft prospectus with BSE to raise approximately Rs1,125 crore.
Brokerage firms and investment bankers want to create a scenario which depicts a booming market. Angel Broking in a recent real estate analyst report said that some of the developers have increased their prices by 30%. Industry sources say this is exaggerated.
“Speculative buying is not taking place but a pent up buying (demand) is coming back to the market,” said Pranay Vakil, Chairman Knight Frank (India), a property consultancy firm.
He also explained, “Since the past eight months people had resisted from buying, thinking that prices may go down further. But now they have realised that there will be no fall in prices or interest rates, so we are seeing a demand in the market. The demand is one year old.”
Renu Sud Karnad, joint managing director, HDFC Ltd, said, “There is a lot of demand from first-time house buyers. There is a good demand for house prices in the range of Rs30 lakh-Rs50 lakh in metros and about Rs20 lakh to Rs25 lakh in smaller towns.”
She also added, “In India the housing shortage is huge. Therefore in the long run it is important for the developers to focus on affordable housing and see that the property prices do not rise sharply resulting in customers being priced out of the market.”
Many developers believe that fake hype about prices will hurt buyer sentiments. In the long run if the prices keep rising, a lot of customers will be priced out of the market.
–Pallabika Ganguly [email protected]