Home sales, on a declining path for many quarters in key markets such as the National Capital Region (NCR) and Mumbai, are expected to get a boost after the central bank cut repo rates by 50 basis points. However, property prices are unlikely to move down, say property companies and consultants.
“I think fence-sitters will come into the market now,” said Lalit Kumar Jain, president, Confederation of Real Estate Developers Association of India (Credai). He expects home sales to go up by 10 to 15 per cent on a month-on-month basis and 20 per cent cumulatively on a yearly basis.
The 13 increases in interest rates between March 2010 and October 2011 kept many prospective buyers away, said Jain. Also, with high property prices and rising mortgage rates, sale of residential and commercial properties fell 15 per cent in Mumbai during the January to March quarter of 2012, compared to a 9.1 per cent fall in transactions in the corresponding period last year.
“With signs of economic recovery and rate cut, one can expect better sales in the coming quarters,” said Rajeev Talwar, executive director at DLF, the country’s largest developer. In the December quarter of 2011-12, it posted a 30 per cent decline in profit after tax and its consolidated revenue fell 21 per cent.
Developers and consultants say reduction in prices is unlikely, given the high input costs and likely increase in sale transactions. “If banks pass on the benefit to developers, we can see a Rs 5-crore savings in interest costs, too small to entail a cut in home prices. Rising rates, increase in input costs and other expenses made us increase prices by five to 20 per cent in the last six months,” said Pradeep Jain, chairman of Parsvnath Developers.
Added Om Ahuja, chief executive, residential services, Jones Lang LaSalle India, a global property consultant: “It is unlikely that property prices will come down because of this rate cut. In fact, it is very likely that there will be an upward bias on property rates because of the anticipated improvement of sentiments with buyers.”
According to NHB Residex, which tracks home prices in top Indian cities, Mumbai home prices rose 11.6 per cent in October-December 2011, compared to the corresponding quarter of 2010.
Adds Jain of Credai: “The real estate sector is heavily dependent on non-banking finance. Till the time the liquidity situation improves and banks start lending, I don’t think sale prices will reduce.”
Developers’ cost of funds have gone up by two to three percentage point levels over the past two years, since RBI increased rates to tame inflation.
"We have been suffering from increase in rates for the past three years and it has affected us by way of high interest payouts and diminishing liquidity. We feel that the worst is behind us now," said J C Sharma, managing director, Sobha Developers, a Bangalore-based developer.
With banks tightening credit to the real estate sector, developers were forced to take money from non banking finance companies at 16-18 per cent and from private equity funds at 20-24 per cent, say property consultants.