Finally, home prices begin to soften

Aug 31 2013, 08:31 IST
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Finally, home prices begin to soften		Finally, home prices begin to soften
SummaryPrices in Delhi and Mumbai fell by 1.5 and 0.5 per cent respectively.

prices. Industry insiders accept that there is decline, and blame it on several factors including a slowdown in the economy and the battered sentiments.

“Real estate rides on economic growth and with a slowdown, the demand has gone down. Also in some cities the prices went up very high and therefore had to come down,” said Anuj Puri, chairman and country head, Jones Lang LaSalle India. He added that while commercial prices started to come off in line with slowdown in the economy, the residential prices continued to remain high. “They have now caught up with the economic trend.”

There are others who agree with this observation, but add that oversupply and overpricing had reached a point that made it inevitable for the prices to soften. “There is clearly an oversupply situation and also the prices had reached a stage where they had to come down,” said Zia.

Experts also point out that in several cities there were micro areas where there is a supply bubble and it is far removed from where the actual demand lies. In addition, high interest rates have softened demand for housing.

Will the fall continue?

The market seems unanimous that prices are not going to harden in the near term. “With the current economic scenario, unstable political environment and elections round the corner, the uncertainty is very high, and in this environment, real estate prices won’t see a rise,” said Zia.

While Magazine feels that the prices may soften further if the situation does not improve, Puri is of the view that prices are not going to harden in the near future.

However the correction may not remain even across cities. For example, while both Delhi and Mumbai are witnessing a fall, experts say that developers in Mumbai tend to delay delivery and also wait for markets to improve thereby holding on to higher prices. A limit on supply further helps them. This may not be the case in other cities that are facing an oversupply situation.

Developers in Mumbai argue that there is a limit to the reduction in price that a developer can offer. “Prices can’t come down beyond a point as the cost of land is high, the taxes have gone up significantly and the overall cost for developers have risen,” said Niranjan Hiranandani, co-founder and MD, Hiranandani Group.

He, however, accepted that in the short-term, the market is going to remain slow but the prices will take off in

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