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Secondary markets indicate a price correction is inevitable

For the past two years, Swadeep Sharma was on the lookout for a house in Noida. Last year, he zeroed-in on a house, in one of the newly-completed projects on the Noida Expressway.

For the past two years, Swadeep Sharma was on the lookout for a house in Noida. Last year, he zeroed-in on a house, in one of the newly-completed projects on the Noida Expressway. However, he was unable come up with the finance for the house that cost Rs 5,600 per sq ft. After sorting out his funding issues, he recently went to the same location, anticipating that he would need to shell out more money. He was surprised to find that an apartment in the same society, was now available at Rs 4,800 per sq ft.

Had real estate prices crashed? Were investors exiting the market by resorting to distress sales? Was the housing market finally becoming rational in its pricing? Whatever the case may be, it definitely sounded like a buyers’ market.

“Initially, I thought that it was a distress sale. On further examination, I realised that this was the prevalent rate in the locality. However, none of the developers in the region had reduced their prices. The first owner revealed that he had bought the house, when it was launched six years ago, at Rs 3,000 per sq ft,” Sharma explained. The price of the property that Sharma had seen, had appreciated by 60% over six years, indicating that property was not the best investment instrument, in this case.


Moreover, the decrease in prices in the secondary market, by 10% to 20%, suggests that developers will have to keep waiting for buyers, if they don’t reduce the rates of their properties. As unsold inventory reaches record levels, developers are trying their best to dispose the same and at least serve the interest on their debt.

Factors that affect prices

Requesting anonymity, a Ghaziabad-based developer admits that transactions in the secondary market, indicate a sharp correction. In spite of this, he maintains that developers cannot reduce prices, due to high input and overhead costs and blames retail investors, for ruining the market. “Today, we are paying the price for selling our inventory to investors. They don’t have the patience to wait. Reports of price corrections are making them nervous and they are resorting to what can be described as distress sales,” the developer explains.

Whether a profit of 50% to 60% over the last five to six years, can be dubbed as a distress sale though remains debatable. Nevertheless, today’s realty market remains insipid for speculators who wish to make money quickly. Besides the lacklustre transactions in the secondary market, developers are also likely to be displeased with the RBI governor, Raghuram Rajan’s straight talk. Rajan made a strong case for reduction in real estate prices, given the high volume of unsold houses across the country. “If real estate developers, who are sitting on unsold stock, start bringing down prices, that will be a big help to the sector, because once there is a sense that the prices have stabilised, more people will be willing to buy,” said Rajan.

His statement is likely to cheer the home buyers, who are hoping for a reduction in property prices, in the near future. While developers may not be paying heed to the RBI governor, participants in the secondary market, seem to have learnt their lesson.

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First Published on Jun 21, 2016 07:07 pm
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