Developers feel liquidity squeeze

On the one hand, high interest rates and soaring property prices have hurt offtake, on the other hand, rising steel, cement prices have pushed up input costs by 20-25 per cent, which developers have to absorb for now.

"The crunch is getting severe. It's not apparent but will become more apparent in the next six months. Land prices are likely to fall in the next 3-6 months,'' said Chanakya Chakravarti, MD (real estate business), Actis Advisers, a private equity firm.

Land prices have been the key catalyst for real estate prices going through the roof. Real estate observers and agents say there's enough evidence to suggest that developers are feeling the crunch.

For example, thanks to a demand slowdown, actual transactions have dried up. In some cases, despite higher sales, the cash flow is missing as receivables are high, points out the CEO of a realty fund.

Developers are cutting price tags. DLF recently sold projects in Chennai and Manesar (Haryana) in 3-4 days at Rs 2,250 per sq ft. This underscores the point that there's a market if prices are affordable. Developers are offering various incentives such as free parking or free registration.

Construction cost has gone up by 20-25 per cent with spike in prices of steel, cement and other materials.

"The cost of steel today might be more than the land cost for a 1,000-sq ft flat. While the market was able to absorb the increase in land prices, it may not be able to absorb the increase in input costs,'' said Arun Agarwal of Reliance Estates, a Delhi-based realty broker.

Developers, especially mid-tier and local players, are trying to rope in private equity players. "The availability of bank finance is very limited. As a result, most developers are going for private equity as that's the only avenue left,'' said Vijay Kumar, CFO, Delhi-based Shipra Group, with presence in Ghaziabad and Noida.

Real estate brokers say that with the hope of input cost pricing easing in coming months, developers are going slow on existing projects.

Builders are borrowing desperately in the ICD market at 19-20 per cent. Borrowing in the ICD market is done typically for 3-6 months, thus strengthening the view about an improvement in the market condition in coming months.

Developers are entering into bulk deals with large corporates to offload their inventory. Employees of a Noida-based technology firm recently bought 150 apartments in a large project at a 20 per cent discount.

"Prices in NCR have fallen by 25-30 per cent,'' said Sanjay Agarwal, a Delhi-based broker.