Purchasing power parity

While property experts have been screaming at the top of their voices that property prices should come down for over a year, many prospective buyers, especially in the metros, would have found that there has been no price correction per se.

Builders, who have made huge profits in the last five years, have been able to hold on to the price, even in the face of falling demand.

However, things could be turning for the better in the months to come. Most developers are planning to increase their focus on housing for the middle-class that would cost lesser than the prevailing property rates.

Unitech, the second largest real estate developer in the country, recently said that it will soon start building houses that would cost below Rs 40 lakh in the National Capital Region (NCR) and other smaller towns, as it hopes to find large number of takers at this pricing.

Parsvnath builders are also focusing on housing that is affordable and ranges between Rs 25 and Rs 45 lakh in NCR and Rs 20 lakh to Rs 40 lakh in smaller towns such as Ghaziabad, Sonipat and Rajpur.

"This segment has the highest demand for housing," says Pradeep Jain, chairman, Parsavnath builders. Mukesh Patel, knowledge worker, Neelkanth Developers, which constructs properties in the Mumbai suburbs of Ghatkoper and Thane, feels that projects will be lauched during Diwali that will offer cheaper price compared to the current level.

Others like Vimal Shah, managing director, Akruti City too say that they are beginning to concentrate on this segment. The company is accumulating 2,000 acres of land near Panvel to cater the mid-level housing demands.

This sharp movement towards cheaper housing comes from the fact that there has been a sharp fall in property sales this buying season. Neelkanth's Patel admits that his sales have dropped by over 25 per cent in the past one year. And for many other builders, it could be as high as 40 per cent accoording to Pranay Vakil, chairman, Knight Frank.

Affordability, obviously is the main reason. In the last five year of property boom, prices have shot up by over 300 per cent in many areas. And in the past three years, the Reserve Bank of Indian has been seeing red over the realty prices.

As a result, it has been constantly hiking repo rates or other indicative rates to encourage banks to reduce credit off take. Just last week, RBI again increased the repo rate by 50 basis points to 8.5 percent and adjusted the cash reserve ratio by a similar margin to 8.75 percent.

Following this, banks have started increasing home loan rates. State bank of India raised the interest rate by 0.5 percentage points on Thursday, followed quickly by Corporation bank and Punjab National Bank on Friday.

Other factors, like the high inflation rate (11.42 per cent on Friday, 27 June), has impacted household budgets to a great extent.

Given that the overall situation is rather grim, developers have been forced to focus on mid-level housing at reasonable pricing. All developers say that the demand for housing is still strong, but buyers are unwilling to buy at the current price levels.

However, these projects would be launched after Diwali because buyers consider it an auspicious time to purchase property. Builders, who are stuck with unsold inventories, are hoping that by this time they will be able to exhaust them.

Also, many of them have been incurring high interest cost on project loans taken from financial intermediaries.The current stock is expensive as it was targeted towards the young and rich, who were riding high on a booming economy. Even flats of over a crore were finding many takers.

"Much of the past development was done with higher specifications, keeping consumer demand in mind. Now, developers will need to come up with less expensive option to cater to masses soon," Neelkanth's Patel says.

For the potential home buyer, this means that if you have been postponing the decision to buy a house, waiting for another six months could mean a better deal.