Falling prices fail to boost real estate sales in India

Falling property prices and incentive offers from developers appear not to be boosting action in the Indian property market.

There is improved interest in real estate with viewing increasing, according to property professionals but demand is not translating into successful transactions.

Would be property investors are still concerned about rising unemployment and are hesitant about buying, it is claimed.

According to Kishore Jain, managing director of Bangalore based real estate company Jain Heights, buyers are looking for even bigger discounts. 'Speculators are definitely shying away from the market. I believe there are many genuine buyers out there but they are hesitant,' he explained.

There are considerable opportunities for buyers to haggle. Experts say that real estate prices have dropped by 15 to 25% and those willing to negotiate could secure further price reductions of up to 10%.

However, a uniform price correction pattern cannot be mapped as correction hinges predominantly on factors such location, demand, supply and the developer's financial ability to weather the storm in the current economic slowdown.

Anand Gupta, general secretary of the Builders Association of India, said developers were reducing prices during negotiations.

'No one would want to sell below production cost and no bank funding can be got once that happens. But developers are willing to negotiate,' he said. He predicts a sedentary market with stagnant prices over the 18 months before sales starts kicking in. 'Once the economy picks up and the prices are seen steady, sales will happen,' he said.

But Sanjay Dutt, CEO Business at Jones Lang LaSalle Meghraj, said that even if developers reduced prices in the luxury segment, it would still be outside the affordability of a majority of property seekers.

He said there has been a correction of 30 to 40% cent in the secondary market of central Mumbai and of 10 to 15% in the primary market. In the suburbs, developers of some projects are holding on, while others have dropped prices by 10 to 15%.

In Delhi prices in the secondary residential market have come down by 7 to 8% with a further reduction of 3 to 4% possible through negotiation.

Others are predicitng price rises. According to R.R. Nair, director and chief executive of LIC Housing Finance Ltd, prices have reached the bottom. 'People cannot expect a further fall in property prices. That stage is over. Builders have lowered prices when they were in trouble in the last few months. Now the liquidity position has eased and the cash flows have improved. They have also cleared off existing inventories. Therefore, there is no reason for them to lower prices,' he said.

'As the demand picks up, property prices will go up. This could happen in the next five to six months,' he added.