The Hindu : Karnataka News : The market is unsteady

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Saturday, Mar 14, 2009
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Karnataka

Karnataka

The market is unsteady

Ranjani Govind

While markets are supposedly down with mid-level builders offering appreciable cuts, top-end builders are still riding high

“Bangalore being India’s Silicon Valley, the progressive demand-slowdown is but natural in the residential sector. With most of the IT heavy-pockets losing foothold, what else could be the outcome?” asks financial expert Hanumantha Rao.

Although the residential market didn’t see an upsurge of activity in the last few months, the third quarter of 2008 witnessed a telling slowdown. “I am paying an EMI of Rs.70,000 for my apartment in Mantri Greens,” says Anand, an IT employee. “With heavily pruned salaries I have nothing left for interiors,” he woes.

From downsizing workforce to seeing their coffers going empty in the construction stage itself, the rough weather that even top-rung builders are facing is something to reckon with.

Stagnant

According to Cushman and Wakefield, international real estate consultants, most micro markets did not see any significant change in capital values. A slowdown in the economy, depleted market confidence and plummeting stock markets continued to affect the sentiments of investors.

Most home buyers, investors or end users, have postponed their purchasing decision in anticipation of a price correction, thus bringing stagnancy in the quantum of sales across most major markets. However, mid-ranged properties in the suburban locations have been the first to react to the sluggish market conditions. In Bangalore east, locations such as Marathalli, Whitefield and Airport Road recorded a quarterly drop of approximately three per cent in the capital values.

Aditi Vijayakar, Director, Residential Services, Cushman & Wakefield India said, “The sharp drop in the stock markets has further aggravated the situation for developers who are battling conditions such as high rates of servicing debt and liquidity issues. Such conditions have led many developers to re-align their strategies and target the middle income groups.”

Overheating

According to Kumar Gera, Chairman, CREDAI, “In 2006-2007 the RBI was of the opinion that the real estate markets across India were overheating. This prompted the RBI to initiate some ‘cool down’ steps and on the demand side, the higher interest rates and higher EMIs came down. Tightening the availability of capital through the banking system to developers led to a cooling off of supply and land acquisition by developers.”

In hindsight, Mr. Gera feels these steps were warranted. Since India is not insulated from the world’s woes, pro-active action is needed to change the environment. “Reduction of CRR by RBI to pump the much-needed liquidity into the markets is a good move. Domestic industrial growth can be countered by large-scale stimulation of infrastructure, housing and real estate developments in our domestic markets,” he says.

The original cause

Says R.P. Deshpande, Director, Institute of Home Finance: “World economists attribute the phase to the sub-prime crisis of America, and ‘sub-prime lending’ refers to all sub-standard loans granted to un-creditworthy borrowers against mortgages, vehicle loans, credit cards, unsecured loans etc.”

In America’s context, sub-prime lending refers to loans that do not meet the guidelines of two largest mortgage facilitators viz., Fannie Mae (Federal National Mortgage Association) or Freddie Mac (Federal Home Loan Mortgage Corporation).

“But if we have to buck up and take a cue from the U.S. debacle, credit rating for builders and each of their projects should be made compulsory and should be given to independent professional agencies, ” says Deshpande.

Builders’ perspective

While there are mid-level builders who are helplessly witnessing the stagnant rates in most parts of the city, some established developers on Kanakapura Main Road, Vijayanagar and Frazer Town/Cox Town are seen offering between Rs.2200-3100 a sq. ft. as against Rs.2,600-3,500 hardly 18 months ago.

Meanwhile, freebies, discounts, taking over customers’ EMIs before project completion and the more recent ‘pay for two-bedroom and get the third free’ offers by mid-level players are leaving customers in a daze. However, since volume-sale comes to the rescue of top-end builders, Sobha Developers recently announced a growth of 8.3 per cent. And Mantri Greens on Sampige Road in Malleswaram is attracting location premium, demanding upwards of Rs.6,000 a sq.ft.

According to a marketing spokesperson of Mantri Developers, “Our pricing across all projects is absolutely steady, our demand isn’t getting influenced by the financial crisis as quality remains our assurance.”

By the way, the home furnishings and decor market in India is pegged at approximately Rs. 15,000 crore and is growing at a rate of 10 per cent annually! Something to chew on?

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