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Buying a home may become more expensive

June 22, 2009 09:28 IST

After nearly 18 months of slowdown, property developers are looking at marginally increasing the prices of affordable homes. Whether it would help these cash-starved firms to improve their profit margins is yet to be seen, but such a move would send a strong signal that the phase of price correction is over.

Unitech, the country's second largest property developer, has already increased its apartment prices by Rs 50 a sq ft to Rs 3,000 a sq ft. These projects were launched under the brand names The Residency and Uniworld Garden-II in April and May, under the affordable home category, with unit areas of around 1,000 sq ft. These were one of the few projects that help in reversing the downward trend in the realty space.

"We had not thought we will see such a huge success for our mid-income projects. Though the price hike is minimal, it shows our projects are selling quickly, even with increased prices," said Unitech MD Sanjay Chandra. The company is planning to build 20 million sq ft of property in fiscal year 2010.

But property consultants are wary of developers' move to increase prices in the current market. "It looks like a pre-decided strategy to increase the valuations of projects or the companies, as most of these firms have lined up public issues or private placements,'' said Pankaj Kapoor, chief executive of Liases Foras, a real estate research firm.

According to his firm's research, the developers' sales to inventory ratio has moved up to 1:9.5 (a unit of sales for every 9.5 units of inventory) from 1:2 in 2005. "There is a bit of improvement in property sales, but sales are below sustainable levels. There is no way the market can digest the price increase," Kapoor said.

After the drastic fall in sales in 2007-08, developers have reduced the floor areas by 20-30 per cent and also price per sq ft by around 25 per cent. The top developers such as DLF, Unitech and the Lodha Group, among others, have shifted their focus to mid-income housing to generate cash, even as their margins fell from 50-70 per cent earlier to 20-30 per cent in these projects.

"We were selling homes at Rs 6,800 a sq ft a year ago and at Rs 5,000 before elections. Now markets have revived and we are in a totally different condition than we were seven or eight months ago. Prices will go up here onwards," said Manish Grover, vice-president, marketing, Sunil Mantri Realty, a Mumbai-based developer that is planning to raise its apartment prices from Rs 5,290 a sq ft to Rs 5,590 a sq ft at its Goregaon East project from Monday.

Other developers in Mumbai such as Nirmal Lifestyle and the Lodha Group are planning to increase their home prices by 4-5 per cent from next week. "We have seen very good sales in our projects. We are observing market conditions closely and think there is some room to raise prices," said Abhishek Lodha, director of the Lodha Group, which is planning to raise by 3-5 per cent in its mid-income projects in the city.

BPTP, a Delhi-based developer, is planning to launch a new project at its 1,500 acre township at a higher price than its existing project. "We have received 5,000 applications for only 500 apartments on sale. So, the new apartments we would launch would be in the higher price category and would be different from the existing project," said a spokesperson for BPTP.

"Developers want to send signals that they are good. But if they are increasing above 10-15 per cent, it would be irrational," said Sanjay Dutt, chief executive of Jones Lang LaSalle Meghraj, a property consultant.

Raghavendra Kamath and Neeraj Thakur in Mumbai, New Delhi
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