Real estate developers have hardly hiked their rates in the last six to eight months and some of them have not hiked them at all. Property analysts say this scenario is different from that witnessed between April and October 2007, when developers hiked rates by as much as 24% to 32%. According to a pan-India survey of local brokers in the residential property market, carried out by global research analysts Edelweiss, around 80% of brokers across India have witnessed a reduction in enquiries over the past month, and about 90% have seen a drop in transactions over the past month. A hundred brokers in 20 micro-markets like Bandra-Borivili, Mulund-Thane, Gurgaon, Noida, Whitefield-Marathalli and Annanagar, in Mumbai, Delhi, Bangalore and Chennai, were polled. Godrej Properties hiked rates for its Riverside project at Kalyan by 24% in 2007, but this year, it has increased them by a mere 7%, from Rs 2,000 per sq ft to Rs 3,000 per sq ft. Rates at Rustomjee's Elanza project in Malad (W) has remained constant, at Rs 9,000 per sq ft, after its hike of 20% at Rs 7,500 per sq ft last year. Similarly, property rates at RNA Builders' Royale Park and HDIL's Dreams project in Bhandup remained at Rs 6,500 per sq ft and Rs 5,750 per sq ft, after jumping 18% and 5% respectively from 2007.

Information technology space has resulted in reduced demand for office space in India in the second quarter of the current financial year. As per the report, many companies, especially in the IT/ITes sectors, have curtailed their expansion plans, which has hit office space sales in the last three-months. Another reason was the unavailability of funds for the sector, it says. The report also said that the current global conditions are likely to impact Mumbai the most as it is the financial capital of India, and the rentals and capital values across most micro-markets in the city will see a further correction. "The global economic slowdown has started to show early signs of impact on the office rental market. Going forward, this is expected to keep office rentals under check," said Mr. Anshuman Magazine, Managing Director, CB Richard Ellis, South Asia.

Want to buy a new home this Diwali? Then don't go for a house that is unfinished, warn experts in the realty sector. The global financial crisis has left builders with little money and they are struggling to finish off even the half-finished projects, let alone going for new ones, according to industry analysts. Experts warn that the financial strain on realtors is causing indefinite delays in the completion of many projects. 'Those who intend to buy property should go for only completed flats. It'll be too risky to buy properties under construction," said an analyst with a foreign brokerage. He cited the example of a Mumbai-based realtor whose high-end residential project in Lower Parel, one of the city's commercial hubs, was to be completed in 2006 but has now been delayed till 2009. Uncertainty looms large over whether even this deadline will be met, he said. This isn't an isolated case. Analysts say delays of three to four years are likely in under-construction projects.

Shares of real estate firms were the worst hit on Friday after concerns of a liquidity crunch in the business drove the sectoral index, the Bombay Stock Exchange’s (BSE) realty index, down nearly one-fourth.
Shares of Unitech Ltd, India’s second largest developer by market value, fell by a record 51.29% to close at Rs30.10 each after intra-day trading took it down to an all-time low of Rs26.60.
Bangalore-based real estate developer Puravankara Projects Ltd, which saw its shares closing 44.32% lower, also touched a record low of Rs42.20 in day trade.
“People are concerned about cash provisions and where will real estate companies get money from,” said Sandeep Mathew, an analyst at BNP Paribas Securities in Mumbai.
An analyst with a domestic brokerage firm, who did not want his or his employer’s name to be used, said, “...people are exiting at any price because there are no buyers for realty stocks”.
There is an aversion towards real estate stocks among “investors (who) are now shifting from net asset value-based valuation to cash flows of the company”, he added.
Shares of DLF Ltd, the largest developer in the country, shed 23.96% to close at Rs203.90. Parsvnath Developers Ltd fell by 20.70% to close at Rs45.20.
BSE’s benchmark index, the Sensex, shrank 10.96% while BSE’s realty index, which consists of 14 real estate stocks, fell by 562.31 points or, 24.4%.
“Real estate stocks have been correcting mainly because developers have not reduced home prices despite a slowdown in sales,” said another analyst with a domestic brokerage firm. “In Unitech’s case, the stock has corrected because the company is heavily leveraged.”

The slowdown in the real estate sector has forced developers in Mumbai to move cautiously. Several developers have cut down on work on their under-construction projects. Besides that, some developers have even postponed launch of new projects. To overcome such a situation, builders are just hoping and waiting for the real estate market to revive, said an insider. Currently, those developers that have large chunks of land for many years, and who have little exposure to banks, are in a comfortable position. The rest are finding the going tough while some who had purchased land at unrealistically high rates, are finding the noose tightening.

The Mumbai Metropolitan Regional Development Authority () is planning to seek international help for its rental housing project, a 'slum prevention programme' under which the authority intends to create five lakh houses for the urban poor in the Mumbai Metropolitan Region (MMR). The Rs 20, 000 crore project is to be completed with the next five years. Chief Minister, Mr. Vilasrao Deshmukh met officials of UK during his visit to Europe. There was a series of discussion among them. The federation has experience of constructing about 20 lakh tenements, which includes affordable houses as well as rental houses across the UK. As per a report given by the MMRDA, population growth in Mumbai is two lakh on an average per annum while growth in slums is around 1.20 lakh per year. Fifty percent of this growth is by migration and the balance is natural growth. The project will be implemented in MMR except municipal corporation area of Mumbai as the corporation has expressed its inability to provide land for these houses.

The prices of up-market residential localities in big metros have witnessed a 20-25% rise in the last four months. Markets such as Greater Kailash I & II, Jorbagh, Golf Links, Amrita Shergil Marg, Sunder Nagar, Vasant Vihar and Shanti Niketan in Delhi, Napean Sea Road, Peddar Road, Breach Candy, Malabar Hills in Mumbai and Richmond Town, Lavelle Road, Cunningham Road in Bangalore have a witnessed a spurt in prices. In Mumbai, the prices in posh areas such as Altamount Road, Napean Sea Road, Nariman Point and Churchgate have gone up by 20-25%. But South Delhi is leading, the market quoted prices as high as Rs 5 lakh to Rs 10 lakh per sq yard. Mr.Vikram Sabharwal, MD of SABH Infrastructure, said, "The prime localities in South Delhi are commanding a huge premium as there is virtually no land available in these posh areas. There is hardly any construction activity taking place. The only activity seen is in large villas being converted into luxury apartments. This has further jacked up demand and the corresponding prices."

The ambitious plan of Maharashtra Government to re-develop the Dharavi could stall because property firms that have bid for the project said the global financial crisis had made it very hard for them to raise money. Although builders did not say they would pull out of the project, they said they were waiting and watching. The project envisions that property firms will build new homes for the 500 acre slum’s residents. The firms are expected to fund this through money they will raise by selling new commercial building they will be allowed to construct on the same plot. The project is expected to cost Rs 15, 000 crore. The 19 firms that made it through the first, technical round of bidding are to submit financial bids in November. Five firms will be chosen. The government plans to allow the winning five firms to start construction in December.

At Lokhandwala Complex in Andheri (West), owners have not been able to lease out their plush 3-bedroom hall kitchen (BHK) flats for the last four months despite revising the monthly rent downwards to Rs 65,000 from Rs 85,000. At Matunga, a one-BHK flat was recently leased out at Rs 32,000, while the market rental rate is set at Rs 38,0000-40,000 a month. At Carter Road in Bandra (West), lessees are quoting Rs9 0,000 for a 3BHK, which earlier commanded a rent of Rs 1.5 lakh a month. At Powai, rents are in the range of Rs 30, 000 to Rs 1.10 lakh a month, down from the Rs 40,000 to Rs 1.5 lakh band quoted earlier. The slowdown in the sale of flats is spreading to Mumbai’s rental market. According to property brokers, in the past three months, rentals have dropped by almost 20-25% in prime residential areas. The drop is a result of high lease rates demanded by landlords and cost-cutting measures adopted by companies in the light of the global credit crunch. And the effect is visible in areas like Bandra, Powai, Sion, Andheri and LBS Marg where a large number of investors have put their flats on lease.

The deals for office space in Mumbai have slowed down over 30 per cent in the last three months. This depression in the commercial market is a sign of the fall-out from the financial crisis in the US. IT and BPO service providers and finance firms, with significant US businesses cutting back on expansion plans and, therefore, the need for prime commercial real estate. Meanwhile, tighter liquidity at home is encouraging companies to defer their property bookings. Bandra Kurla Complex where rentals peaked at Rs 450 per sq ft a month, clients are now negotiating with developers at below Rs 300 per sq ft. Rents are expected to come down to Rs 200 a sq feet when three prominent buildings are completed in six months. In the Churchgate area, which houses old office buildings, rentals have already settled at Rs 240-2sq ft a month from Rs 325-350 a sq ft barely two months ago. That is a 45 per cent correction. Rentals are expected to fall another 15 to 20 per cent in the next six to nine months as IT and BPO companies cut back on expansion plans as the financial crisis in the US, their biggest market, kicks in.

As elections are coming closer, the state government has taken a major step towards realizing the dream of affordable houses for the economically weaker sections and the middle income group (MIG). The state urban development department has directed Brihanmumbai Municipal Corporation's (BMC) development plan office to amend development control regulations, making it mandatory for all mega constructions in the city to develop houses for the poor and the economically weaker group. Accordingly, the civic office has formulated a proposal, whereby it will be binding on all private construction measuring 20, 000 sq ft or more to construct houses for the economically weaker sections and low income groups (LIG) on 10 percent of the total built-up area. It will also be binding on them to reserve another 10 percent of the area for the middle income group (MIG). The LIG homes will be 300 to 500 sq ft in area, the MIGs will be 500 to 1, 000 sq ft in area, a senior official from the development plan office said.

The realty slump that has hit the market could be a blessing in disguise for those who have been struggling to buy a home. With a view to mint maximum profit in Mumbai where land comes at a premium and there is a booming realty market to boot, over the last four years several developers had redefined their company profile to cater largely to the higher end of the price spectrum. However, builders who had built sprawling duplexes with lavish interiors, motion sensor lighting, home theaters and walk-in wardrobes for an exclusive clientele are finding that what they managed to sell were more glossy brochures than actual flats. And now, there is rethinking. Mr. Anuj Puri, Chairman of Jones Lang LaSalle Meghraj said that most realty majors are now focusing on the neglected sector of affordable housing after realizing that they have the fastest absorption rates. This trend is now evident on a pan-India basis. Major real estate players including DLF, Parsvnath, Omaxe and Unitech whose forte until now was luxury homes are now planning to venture into the affordable housing sector in Punjab. Some time back, Purvankara Projects announced the launch of its affordable housing arm which would build homes priced at Rs 10-20 lakh in Bangalore, Chennai, Hyderabad, Coimbatore and Mysore and later in Delhi, Pune, Nagpur and other places.

The demand for bigger houses by 60, 000 Dharavi residents has been answered. The state government has decided to give the dwellers 300 sq ft houses instead of the proposed 269 sq ft after the redevelopment. According to the new provision, each dweller would get an additional 10 per cent of the total built-up area as a balcony. Earlier, the balcony was included in the total carpet area. Also, they would be given an additional Rs 20, 000, which would be paid by the Slum Rehabilitation Authority for the mainstream premises. The developer building the project is also supposed to provide Rs 20, 000 in an escrow account to finance the building's upkeep. "This means the dwellers will get Rs 40, 000 for the project’s upkeep. We will pay our part through the premium that we get from the redevelopment project," Dharavi Development Authority CEO, Mr. Gautam Chatterjee, said.

Analysts say prices may stagnate or decline in the next three months.

Home prices may decline in the next three months, according to a national poll conducted among top property brokers by Edelweiss Securities, a Mumbai-based brokerage.

Almost 70 per cent of the brokers who participated in the poll believe prices will be flat or negative in the period and even Diwali is unlikely to lift the mood in the property market.

About 60 per cent of them believe that prices have stagnated over the past three months. The Reserve Bank of India’s move to raise repo rates by 125 basis points in the last six months has resulted in commercial banks increasing their lending rates by similar margins. In turn, home buyers have to pay a much bigger amount as monthly pay-out on home loans.

On an average, the monthly instalment on a 20-year, Rs 10-lakh loan has gone up over 50 per cent to Rs 12,740 on a 14.25 per cent rate from Rs 8,060 (7.5 per cent interest rate) five years ago.

Due to high demand from end-users and investors alike, home prices in main markets such as Mumbai and Delhi have trebled in the last two years, making homes unaffordable for middle class buyers. According to the poll, 90 per cent of brokers have seen a drop in transactions in the last one month and almost 80 per cent of them witnessed a reduction in enquiries over the same period.

But, property brokers feel that price movements will differ in different markets. According to the poll, about 60 per cent of brokers expect prices in the Mumbai island city to come down in the next one year. But they feel prices in Gurgaon in the NCR region, Whitefield in Bangalore have stagnated over the past three months against the perception of a price fall.

Meanwhile, brokers say they have seen an increase in enquiries in Chennai in the last one month. However, they are yet to see the conversion of enquiries into transactions.

Says Pranay Vakil, chairman of Knight Frank, an international property firm, “If you compare residential sales this year compared with last year, there has been a drop of 90 per cent. It is just a tip of the iceberg. Worse is yet to come,’’ he says.
Adds Hemant Barabde, a Mumbai-based property consultant, “We feel the current slump to continue for a year till the general elections, after that prices may pick up again.’’

Real estate developers and agents in India are now offering more solutions to market properties to Non-Resident Indians (NRIs) and international property investors. Their focus is geared to target the burgeoning and lucrative market of prospective Western buyers.

As an increasing number of businesses are outsourcing their IT functions to India, property in commercial hubs such as Mumbai, is in high demand but it comes at a cost. Renting office space in Mumbai is even more expensive than in Manhattan.

It seems then that there is good business sense to invest in emerging markets rather than expensive, established areas such as Mumbai. Rudrapur is reported as one place that is taking off in terms of investment in business. The government has made the area a tax free zone and there are over 450 global corporations planning to set up businesses there in 2008.

According to Liam Bailey, Head of International Research for David Stanley Redfern Ltd, India is becoming increasingly attractive. 'We are seeing businesses flocking to the area since the government designated it as a Special Economic Zone (SEZ). This means businesses pay no income tax for the first five years and receive a 30% discount over the following five years.

The Maharashtra Government has made it mandatory for builders to sell flats on the basis of carpet area, amending the Maharashtra Ownership Flats (regulation of the promotion of construction, sale, management and transfer) Act, 1963. "People end up paying more money for built-up area or super built-up area of flats and the amendment will help them save money," an official from the Housing Department said.

Delhi-based Real Estate Developer Unitech had received about $175 million (Rs 740 crore) from Lehman and is very confident of surviving the Lehman crisis. A Unitech spokesman said, "Unitech has already received the money and closed the deal with Lehman Brothers' managed real estate fund. We are not affected by the Lehman bankruptcy. The Lehman real estate fund is third party capital managed by the Lehman asset management business." In June this year, the Lehman managed real estate fund bought a 50 per cent stake in the Mumbai project. Lehman picked up stake in one million sq ft of space in a project jointly developed by Unitech and its local partner, Western Expressway JV, at Santa Cruz. The project involves 18 million sq ft of development estimated at Rs 26,000 crore.

The Maharashtra Housing and Area Development Authority (Mhada) plans to sell 600 so-called budget flats in Mumbai around Diwali and expects at least 200,000 applications for this, an indication of the demand for affordable housing in one of India’s most expensive real estate markets.

The flats, which will be 225 sq. ft and 600 sq. ft in size, are located in Sion and Vikhroli in the city. Property prices in Sion range between Rs6,000 and Rs12,000 a sq. ft. Mhada’s flats will be priced at Rs2,000-2,200 a sq. ft. Buyers will be picked from applicants through a lottery.

“There is a huge demand for such affordable housing in Mumbai where real estate prices have become unaffordable... We got overwhelming response from our sale earlier this year and have decided to sell some more flats this year,” said Honaji K. Jawle, chief operating officer, Mumbai Board, Mhada.

The coming sale follows one in June by Mhada to sell 900 flats to people from households with very low income (it received 65,000 applications) and an ongoing one in New Delhi where the Delhi Development Authority is selling 5,010 flats within the city (it has received around 850,000 applications and will pick the buyers by lottery).

Property prices in Mumbai have risen by 30-40% in the past year. Transactions in the range of Rs40,000-90,000 per sq. ft have put the city in the league of the world’s most expensive destinations but, in the process, elbowed out middle-class homebuyers.
Real estate advisory Knight Frank India Pvt. Ltd estimates demand for houses in Mumbai is around 84,000 a year, while supply, from the government and private firms, is only 55,000. Mhada, with land banks within the city, is one of the few options before people who seeking affordable houses. Mayfair Housing Pvt. Ltd, a local developer, offers flats for Rs18-22 lakh but even these are in Vasai, a distant suburb.

“It’s not easy to do affordable houses in Mumbai, particularly within city limits, because of the high costs of land involved. This is why we could afford to provide budget homes in Vasai...because the cost of land is much cheaper in the earlier location,” said Nayan Shah, chairman of Mayfair Housing.

Not everyone is convinced Mhada’s flats are a good bargain. “Quality issues have been a concern against Mhada houses and have kept many homebuyers away. Though the flats are far cheaper than the market rates, their construction is bad, fittings are of poor quality and finishing is not up to the mark,” said Prakash Gupta, director of Mumbai-based brokerage Sunrise Real Estate.

The Maharashtra government is expected to raise the floor-space index (FSI) from one to four for the areas to be connected by the Rs 7,000-crore Mumbai Trans Harbour Link (MTHL). This initiative will benefit Navi Mumbai Special Economic Zone (NMSEZ), which is being developed by Reliance Industries Ltd (RIL) in a joint venture with the state government’s infrastructure arm, City and Industrial Development Corporation of Maharashtra Ltd (CIDCO). To avail the higher FSI, one will have to pay a premium of 20 per cent on the rate mentioned for the area in the ready reckoner, said a senior official from the state government’s urban development ministry. The FSI is the ratio of total floor area of a building to the size of the plot. It indicates the maximum construction that is allowed on a plot in a particular area.

International property consultants have called for reduction in residential prices as demand has gone down by over 40 per cent in the last nine months.

While end-users in big cities such as Mumbai and Delhi are postponing buying houses due to a number of reasons such as unaffordable prices, rise in interest rates and increase in their monthly pay-outs among others, investors have sold off their properties to pay for losses suffered in the stock and property markets, consultants said.

“Developers must now be ready to lower their selling prices in order to revive demand. Once this happens, we will see a definite upswing in residential real estate sales again,’’ said Anuj Puri, chairman and country head of property consultancy Jones Lang LaSalle Meghraj (JLLM).

The Reserve Bank of India (RBI) has raised repo rate, the rate at which it lends to banks, by 125 basis points in the last six months to contain inflation.

In turn, commercial banks have raised consumer loan rates by 50-100 basis points. Thus, on an average, the monthly installment on a Rs 10-lakh loan for 20 years has risen over 50 per cent to Rs 12,740 at 14.25 per cent rate from Rs 8,060 (7.5 per cent rate) five years ago.

“While ready apartments are being sold, those under construction are not finding enough buyers,’’ said Vikas Oberoi, managing director of Mumbai-based Oberoi Constructions recently.

After global investors such as Lehman Brothers and Merrill Lynch suffered huge losses in the US and others reduced their exposure in the emerging property markets including India, consultants believe foreign funds would come into the country at much lower valuations.

“If developers had a horizon of 25 funds earlier, now they will have only 10 funds. Investors would want to come in at much lower valuations. I expect nearly 20-25 per cent correction in prices around Diwali,’’ said Ambar Maheshwari, director of DTZ, a global investment advisory.

Adds Puri, “The Indian real estate market is likely to underperform in the next six to 12 months. During this period, investors are well-advised to concentrate only on key listed players who are better placed to ride out the storm. Only such companies are geared to show good share performance over the longer term,’’ he said.

A cross-section of property developers, consultants and brokers said enquiries from home buyers have gone down by 40 per cent over the last three months, compared to the same period last year. While developers are not advertising any price cuts, most are willing to reduce prices once the negotiations begin, according to investors.

For instance, in Gurgaon, where the prices are Rs 6,000 per sq ft, developers are settling deals at Rs 5,500-5,400 due to a sharp reduction in demand. This is apart from freebies such as free parking, waiver of stamp duty and equated monthly installments.