Home demand inching up, but recovery not in sight

Published: June 10, 2009

MUMBAI — Homes sales in India are trickling back in some sections of the market, but industry watchers say a rebound is months away as buyers in the world’s second-most populous country await further price corrections.

Builders have begun new projects after a year-long hiatus, and are also swapping older premium project proposals for cheaper ones to restart sales as they try to beat a severe cash crunch.

“While the market has turned up, I don’t expect it to be back to 2007 or 2008-beginning levels for another 6 months or 8 months,” said Rajesh Goenka, Chairman, Axiom Estates, real estate agency, servicing overseas Indians mostly in the earning bracket of $100,000-$300,000 a year.

Indian real estate developers have spent months battling a severe cash crunch as high interest rates and an economic slowdown kept buyers away and funding from investors dried up.

But, a spate of interest rate cuts and a sentiment revival has encouraged builders to focus on middle-income buyers by launching new projects or re-market older ones as mid-income properties.

Unitech, Parsvnath Developers as well as India’s top listed real estate firm DLF redesigned projects and cut costs to appeal to a wider consumer base.

Demand is swaying towards affordable housing and buyers of luxury properties are staying on the sidelines, holding out for a further drop in prices.

In the quarter to March, half of the homes sold were in 114 new projects of the 2,000 available for sale, according to estimates by realty rating and research agency, Liases Foras.  Realty firms are also using the momentum to tap investors for money. Real estate firms alone have raised $1.7 billion this year so far, Thomson Reuters data showed, to beat a cash crunch.

In cue, India’s realty index has almost tripled, outperforming the 82 percent rise since March 6 in the benchmark 30-share BSE index when it saw its 2009 low.

Despite a cautious revival in demand for homes, the sales taking place now are not spread evenly despite prices falling by 40 percent from their peak for under-construction houses mainly in southern and northern India, analysts say.

Moreover, the revival in demand may not push prices higher but transactions will rise, said Axiom’s Goenka.

And even though builders say new projects are being lapped up, home loans are not picking up as fast, suggesting that the homes were picked up by investors, said Pankaj Kapoor, founder and chief executive, Leases Foras Real Estate Rating & Research.

“It’s skewed demand and it’s all investment driven. The old properties have not shown improvement in terms of sales…I call them the mysterious buyers. You cannot call them the real buyers,” he said.  The renewed demand may not be as high as developers make it out to be or what the realty stock rally suggests, analysts add.

“The rate of change is not as high as it is made out to be in the market. There is a certain amount of over-enthusiasm,” said Shobhit Agarwal, Joint Managing Director, Capital Markets, Jones Lang LaSalle Meghraj said.

The ground reality hasn’t changed much, say homebuyers. Prices haven’t fallen as anticipated with builders’ standing guard, hoping prices will continue to firm and investors too hope for a return in pricing.

“We believe it’s still early to call a recovery and would wait for some signs of improvement in execution and sustainability of volumes before getting positive,” Citi analyst Karishma Solanki said in a June report.

Source: In.Reuters

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