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Builders agree to cut house prices by 5-10%
November 22, 2008
New Delhi:
That house you’ve been longing for may be within your budget soon. Real estate developers have decided to cut prices on the houses they sell by 5 to 10%. Faced with a situation in which buyers have become scarce, two major bodies of builders announced the proposed cuts on Thursday.
Developers feel the announcement of cutting prices will help satisfy the general perception that real estate prices should fall and hence bring buyers who are adopting a wait-and-watch attitude into the market.
“At present, end users are waiting for the prices of real estate to fall to enter the market. The decision to cut prices should meet their demand and make them purchase houses,’’ said Rohtas Goel, president of National Real Estate Development Council (Naredco) and CMD of Omaxe.
Kumar Geram, chairman of Confederation of Real Estate Developers’ Association (Credai) and CMD of Punebased Gera Properties, said the association has urged and advised its 3,500 member developers to make every effort to lower prices. He said this would boost demand.
Interestingly, the rate cut announcement came just two days after the industry had dismissed finance minister P Chidambaram’s plea for lower prices as unrealistic. It suggests that developers realize they must appear to be bowing to the popular expectation if they are to see a revival in the housing market.
DREAM HOME CLOSER TO REALITY
Credai and Naredco, both builder associations with around 3,500 members each across the country, appeal to their members to slash prices of properties they are offering to buyers
Builders feel prices of apartments in the Rs 20-40 lakh range will fall by 5%
Apartments valued above Rs 40 lakh could see prices drop by 10%
For ongoing projects, the rate cut could come in the form of discounts
A Rs 25-lakh flat may now come for Rs 23 lakh, a Rs 50-lakh apartment for Rs 45 lakh and a Rs 1-cr condo for Rs 90 lakh Premium houses to cost 10% less
Developers say that the prices of premium houses, which cost over Rs 3,000 per sq feet, will be lowered by a minimum of 10%. That means, prices of a typical three-bedroom apartment of over 1,500 sq feet will come down from about Rs 50 lakh to Rs 45 lakh. Prices of apartments that cost over Rs 1 crore currently would come down by at least Rs 10 lakh.
The cost of affordable houses, in the range of Rs 20 lakh to Rs 40 lakh, will see a more modest cut in the range of 5%. Sunil Jindal, CMD of Delhi-based developer SVP, said these houses are already priced so low that there is not much scope to cut prices further. He pointed out that in the suburbs of the NCR and some other metros like Bangalore and Chennai, apartments are launched at around Rs 2,000 per sq feet. In such apartments, he said, builders are working on very thin margins. Yet, to lure customers, the builders are willing to give a discount of 5% on the printed price.
The willingness to suffer a cut in what they claim is already a thin margin can be explained by economic rationale. A senior builder said that because of the high interest rate, the holding cost for a builder is in the range of 20% per annum. Besides, they need funds to repay banks, so that they are not declared defaulters. To avoid such a situation, builders are under pressure to sell to generate cash. This is forcing many developers to cut prices to close a transaction.
Another factor is that the cost of steel and other inputs has declined by 20 to 25% in the last three months.
Source: The Times of India
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