This is the time when realtors can either swim or sink. As banks are lowering home-loan rates and the government is considering interest-rate schemes, this looks like the last big chance for developers. But it seems they have not realized it yet. Most developers are still very adamant and are holding on to their price lines. At the same time, buyers are shying away from buying a property because they are looking for a correction but can’t find any. If the on-going layoffs scare grips the markets in the coming months, there will be a little chance for the housing sector to survive the downturn. Mr. Sanjay Sharma, Executive Director, Cushman & Wakefield said that sales will get a push only if prices are brought down. Offering discounts and freebies is a cosmetic initiative which is unlikely to raise sales.

Why realtors fail to see doom in high prices?
According to analysts, there is a feeling that the real estate sector has a longer trade cycle than most other asset categories. When prices drop, they stay there for a longer period. This explains developers’ aversion to price correction.

Measures adopted so far:-

While one can see a clear aversion to price cuts by developers, they think that they can boost sales by realigning their strategies. Some of the real estate developers are offering a mix of discounts and freebies on their projects. However, all this has barely pushed the sales, mainly because buyers are watching the price line. Even after these so-called discounts offered by realtors, the prices of properties are unaffordable. “The developers are likely to reduce the size of the units (wherever possible) to improve the overall levels of absorption. We expect the prices to see a correction of over 10 percent in the next six months, before the transactions pick up,” said Mr. Jain. However, Mr. V K Sood, MD of PNB Housing Finance Ltd, feels that developers should be more transparent. “They generally need to offer discounts on their inflated rates and need to be more transparent in their dealings. Then only, the market can see some improvement,” he says.

Can’t bank on meltdown:-

Despite assorted steps by the government and the RBI to boost loans, bankers are cautious in payout. Mr. Sood of PNB Housing Finance says the current scenario is fear-provoking as people are loosing jobs. He says that banks are ready to offer loans provided the climate is comforting. Many banks are still not seeing a rise in disbursement of loans due to the stricter credit appraisal norms. “This is happening because of the uncertainty in the economy where banks are not sure about the payback capacity of the borrower. We expect the disbursements to take time to pick up, primarily due to supply-side (banks) constraints,” said Mr. Jain of DTZ.

The State Bank of India has announced the lowest rate of interest at 8 percent. Other banks are yet to come down to this level.

Watch every action of banks:-

To exploit the generosity of banks, developers need to have a fitting attitude. As banks are cutting down rates in specific brackets, the best step for the developers would be to develop projects in those loan brackets. “Only when the developers will target those loan brackets they will be able to reap the maximum benefit,” says Mr. Jindal of SVP Builders. There has been a rush in the middle-income housing segment as it has become a cashing point for many developers. “Affordability is the key. Many developers have started realigning their market strategy by launching affordable housing projects to regain customer interest,” says Mr. Venu Gopal, an associate director at Ernst & Young.

How the future looks like

At a time when most developers are suffering severe cash crunch, the most debatable point is how would realtors generate enough cash to pay lenders if they keep holding on to their unsold flats, hoping that someday demand would return. “The economic slowdown will lead to a further holdback in demand for commercial property, and the likelihood of job losses and salary cuts should curb housing demand,” says Mr. Verma of Cushman & Wakefield. So, it seems developers have no other alternative but to lessen property rates immediately. Or else they will get caught in the momentum of slowdown.

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