Property developers, who are holding huge inventories have been asked by the banks to increase the revenues as they are facing significant drop in their sales. The reports come as retailers continue to point to a slowdown in demand as consumers hold back spending and build savings due to high policy rates.
Developers are also under pressure by the banks due to mounting debt which is over Rs 38,000 crore for the top 11 builders.
For the last six months, builder rates of apartments have remained in the range of Rs1,500-4,500 per sq. ft in Gurgaon, Noida, Navi Mumbai, Thane, Mangalore, Pune, Indore and other cities.
“The property market cannot sustain the current price levels. Mumbai & Delhi are the most investor-driven markets. This is where the first crack can come from" says VK Sharma, chief executive officer of LIC Housing Finance, the leading state-owned insurer of home finance-market. He further said, a 10 to 15% price correction is likely to occur this festive season as a means to revive sales.
Supply has outpaced demand in recent times with the rise of new developers in property arena, which is also another reason, demand going down.
On the contrary side, some of the property developers expressed views, that sales are dampening due to RBI's inflationary stance which has hiked interest rates 11 times since March 2010, which is hurting their borrowing ability. "RBI's rate tightening has resulted in developers not having enough funds to complete the projects and hence the supply will remain in check, while demand is still intact."
Many of the banks have denied giving up additional loans to developers any further until they sell their vacant apartments so as to revive sales, even if that meant cutting prices. So far, developers managed to avoid doing this, fearing any correction could lead to a crash. But now, they are left with no option but to cutting up prices. So, the prices may fall further to revive sales by Diwali.
Some of the developers have already started providing apartments on discounts so as to boost up sales. For example, Imperia Structures, has launched residential apartments at Sector 37C, Gurgaon, at Rs 3,500 per sq. ft. The company is offering an inaugural discount of Rs 250 per sq. ft.
So, an effective bargaining style with the builder can spring you with an attractive discount.