Disguised discounts prop up realty rates

Developers deny prices are falling, dole out sops

MUMBAI: In a clear sign that the dip in sales is getting to them, at least three developers in Mumbai are offering huge discounts to entice prospective flat buyers. But the discounts are not offered upfront.

The Nahar Group, which has entered into a deal with HDFC, is offering to pay the equated monthly instalments on home loans for its projects from HDFC till possession of the flat can be given (usually two to three years from the booking date). HDFC finances up to 80 per cent of the cost.

The deal benefits the company too, because it gets money at home loan rates. Raising money from the market would cost almost twice as much.

On the other hand, K Raheja Corporation at Powai and the Nirmal Group at Mulund are willing to give buyers up to a year to pay the rest of the flat cost if buyers make a 20 per cent down payment.

“It is a sign that developers are feeling the pressure of dropping flat sales,” a senior executive from a housing finance company, who asked not to be named, said. “Developers have admitted to us that sales have dropped by as much as 45 per cent. It is a matter of concern for them. Why else would they offer to pay EMIs if they were not worried about the money flow for their projects?” The executive believes flat prices will come down further by May.

Other developers are asking their investors to book profits at a certain rate and reinvest in other projects. “That way the investor saves on stamp duty and registration costs,” said a broker. “It is because of this refinancing that some big developers like Kalpataru have started phase 2 of their projects.”

Though the Dynamix Balwa Group denied this, almost 30 per cent of the 350 flats sold by it in the Orchid Woods project at Goregaon (East) is held by investors. The project is scheduled for completion in 2011. The position is similar in projects of other developers like Keystone and Akruti, according to brokers.

For the past few months, property dealers have been reporting a decline in demand for flats throughout the city. Developers and owners of resale flats are offering a price drop of up to 15 per cent if the buyer is willing to pay the entire amount in a stipulated time period.

But though sops are being doled out, no developer is willing to admit that prices are falling.  

“They will not admit it as developers are currently rolling in money from low-cost borrowings, IPOs, and equity from foreign funds,” said Chetan Suchak, managing director, Suchak Properties. “Almost 90 per cent of developers are in this bracket. Their holding power is good.”

So good, in fact, that some developers are even raising prices. But Mahesh Ahuja, naval officer turned real-estate broker, said, “There is no logic for prices to rise. Developers are seeking to cause panic by hiking rates so that consumers feel pressured to buy now. Moreover, December to May is peak season for transactions, when many NRIs and local buyers seek to strike deals. Taking advantage of this, developers attach a premium to their properties.” Ahuja himself is advising his clients to rent flats for now.

That Ahuja is right can be seen from the fact that for the past six months no developer has launched any new project. “A situation of artificial shortage is being sought to be created,” said the managing director of a global real estate consultancy. “As they are flush with funds, developers are able to sustain prices. If they want cash, they drop their prices, sell two or three flats, and jack up their rates again.”

Several brokers also said that as of now the volatility in the stock market had not cast a shadow on the realty sector; in fact some funds had come in from those put off by the market fluctuations. However, they add, the risk of a run on realty increases if the market keeps falling.

m_rajshri@dnaindia.net