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Mar 04, 2011, 06.47 PM IST | Source: CNBC-TV18

TDR rates fall to Rs 2500-2600/sq ft across Mumbai

Transfer of development rights (TDR) prices in Mumbai have softened by 15-20% across areas in the current quarter. Market sources told CNBC-TV18's Priyanka Ghosh that prices have fallen to an average of Rs 2,500-2,600 a square foot this quarter from Rs 3,000 a square foot last quarter.

Transfer of development rights (TDR) prices in Mumbai have softened by 15-20% across areas, in the current quarter. TDR means making available certain amount of additional built up area in lieu of the area surrendered by the owner of the land.

Market sources told CNBC-TV18's Priyanka Ghosh that prices have fallen to an average of Rs 2,500-2,600 a square foot this quarter from Rs 3,000 a square foot last quarter.

The rate in Bandra is expected to hold around Rs 3000 per square foot, but the rates in suburbs like Goregaon and Andheri have declined sharply.

An indication of this was seen last week when a deal between Oberoi Realty and HDIL happened at a significant discount to the rate in December 2010.

CNBC-TV18 on Thursday spoke to two companies on the supply side. While HDIL could not be reached for a comment, DB Realty estimated the average price of around Rs 2,700 per square foot.

On the buy side, the channel has got three estimates— Orbit Corporation said the prices ranged between Rs 2,100 and Rs 2,600 per sq ft depending on the area. The Hiranandani Group said it is about Rs 2,600 per sq ft on an average and a leading developer in the suburbs said that it is Rs 1,500 per sq ft, which is quite an alarming number.

The channel also did a brokerage poll with five leading brokerage houses and the number that was thrown up was Rs 2,560 per sq ft.

Market sources say volume sales during this quarter have been under pressure and there could be supply constraints in the next three-four months.

Will this impact house prices?

One will have to wait and watch for a direct price reduction but definitely it is a very good indicator of the kind of stress is prevalent is in the market at this point in time.

Wouldn't banks be unrelenting on developers letting their house prices fall?

No, on the contrary, it could well be that banks would want developers to perhaps mark down prices because their feeling would be that cash flow would come in and therefore the loans are to that extent safer. They would not want developers to use their money to hold up prices because that could be unrealistic.

The realty story so far…

Never mind the sky high property prices; realty companies are not able to sell enough homes or office space. And if they are, it is not showing up in their account books. Add to this the lack of transparency in the sector, and it is no surprise that shares of property developers are still trading at a fraction of the dizzying valuations they commanded at the peak of the bull run in 2007-08. The RBI is choking funds to the sector to prevent a bubble in the housing market, through restrictions on loans that banks can give to builders. Following the scam at LIC Housing Finance in which some real estate companies got loans approved by bribing senior officials, banks have become even more wary of lending to real estate firms. Real stocks have been underperforming the broader market for some time now, but fund managers and analysts feel they are still not cheap.

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