Don't expect property prices to go down

Despite talks of recent downturn in property prices, developers are unlikely to reduce prices, as the realty players feel that their properties are well- priced, says industry body FICCI.

"Voluntary reduction of property prices are not on the cards of developers. Barring very few developers, who have already reduced their prices, majority feel that their properties are rightly priced," said the Chamber in its latest study on the scenario of property prices in the country.

According to the report, developers may cut prices "by 10-15 per cent and not beyond only if the situation does not improve in the next few months".

The study underlined that developers seemed to have realised the need for affordable and mid-range housing to survive the current slowdown.

FICCI also said due to higher risks of investing in real estate, the sector would witness lower private equity deals in the next 12 months, as funds would not be easily accessible.

"...valuations are expected to go down further and the costs are going to be very high for developers," it added.

Regarding housing projects, FICCI said: "After having reached its peak, residential real estate in India will witness a steady down cycle for next few months. There is time and cost overrun in the existing projects while new projects are being deferred."

Such a situation would eventually lead to a reduction in price in the coming four quarters and the market was expected to turn in favour of end-users, the report said.

According to the industry body, high interest rates have dwindled the demand for properties, while scarcity of funds and slimming of liquidity have affected the supply side on commercial real estate.

"The corporates are postponing their expansion plans as they are expecting the prices to fall further. Instances of deferment in projects and delays in execution of ongoing projects are numerous," it said.

An increasing number of developers are now shifting their focus to demand based developments due to oversupply of commercial spaces, the report added.

Stating that many realty firms have diversified in the recent times to counter falling sales in the property market, FICCI said: "To beat the slowdown, some prominent companies are considering entering new areas like coal mining, big-ticket irrigation projects, transmission lines, telecom and core infrastructure projects."

On the PSU banks' recent reduction in interest rates, the report said that the upper limit of the special package for home loans should be increased to Rs 30 lakh from the current Rs 20 lakh.

FICCI has suggested measures, including simplification of land-holding framework, single-window approval for projects, use of technology to keep land records and release of more urban lands, for a healthy functioning of the realty sector.

In addition, the report has suggested allotment of higher floor space index (FSI) for integrated township projects to make properties more affordable.