Real Estate Industry Bailout

Rohtas Goel, CMD, Omaxe, said unsold property to the tune of Rs 20,00­0–25,000 crore remains stuck in the country. On the new interest rate regime, Goel said his company was not catering to the under-Rs 20 Lakhs category but added that it could start catering to the segment. “So we will not get any benefit out of this package which has come right now.” He added, “to promote the housing sector and to promote the affordable housing sector, we expected a little more from the government. The rate of interest for loans up to Rs 5 Lakhs should have been at 6.5%. The rate of interest up to Rs 30 Lakhs — and not up to Rs 20 Lakhs (as is currently given) — should be around 7.5%." Goel added that even as many developers were increasingly looking to focus on affordable housing, what happens to the existing projects that are stick now remains to be seen. “To bail out those projects, we need loans up to Rs 30 Lakhs come at a single-digit interest rate.”

Pradeep Jain, Chairman, Parsvnath Developers Ltd, echoed Goel’s views. “The bankers not charging any processing fee for loans up to Rs 5 Lakhs and minimum fee for up to Rs 20 Lakhs is a very welcome move,” he said, adding, “But even the current interest rate regime of 8.5% and 9.25% for the two brackets is too high. The industry was expecting an interest rate of about 6% for loans up to Rs 5 Lakhs.” Jain added that the Rs 5–Rs 20 Lakhs segment should be extended to Rs 30 Lakhs at the upper end. “At the same time, the government also needs to re-look at the interest rates beyond Rs 30 Lakhs. The rate of interest there needs to be cut to single digit,” he said.

Developers to cut prices by 5-10%

Good news for property buyers! Mr. Rohtas Goel, President of National Real Estate Development Council (NAREDCO) and CMD of Omaxe, announced that real estate developers have decided to reduce the prices by 5-10% across the country. He said that this move will attract buyers who were just waiting for price reduction from developers into the market. Prices of apartments which cost over Rs. 1 crore will come down by 10% while those of affordable houses, in the range of Rs. 20 Lakhs to Rs. 40 Lakhs, will see a modest cut of 5%. They can not drop prices further because developers are already operating at a lower margin thanks to exorbitant land and commodity prices.

However, the big question to ask: Is it enough to attract buyers? hmmm..may be not. Property prices have zoomed to above 100-200% in the last 3 years and have become unaffordable to majority of middle class buyers. The rising interest rates have even more discouraged buyers from looking for properties. Even if interest rates come down from 14% to 11-12%, how many people will like to apply for new home loans or invest in properties in this gloomy world economy and uncertain environment? With private banks resisting to drop PLR and buyers not willing to look for loans, things may not be turn out to be the way developers want. This would be interesting to see how coming months unfolds for the industry.