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Residential rates tumble in metros

By Gayatri Ramanathan in Mumbai
August 18, 2006 10:15 IST
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Residential prices in the metros are falling. All the three major metro markets - Mumbai, Delhi and Bangalore - are witnessing a drop in prices by around 20-25 per cent, especially in the mid-market segment.

Said a Mumbai broker who operates in the more tony western suburbs, "We were selling flats in Andheri and Goregaon at Rs 7,000 per sq ft and Rs 5,000 sq ft, respectively till two months ago. But now there are fewer buyers and the same flats fetch prices lower by 20 per cent."

While Mumbai is witnessing a decline in prices in Navi Mumbai and other suburban areas in general, Delhi is seeing prices going down in Gurgaon, Noida and Greater Noida.

In Bangalore, residential property prices have also been showing a downward trend across all middle market areas, said analysts.

Residential prices across the country were expected to fall ever since the stock market correction in May this year. Around June, brokers and consultants began reporting fewer transactions. Land prices in these markets have also seen a downward correction.

The recent hikes in interest rates could result in real estate prices coming down by another 15-20 per cent in these markets as there will be fewer takers. Land deals could also see a correction.

According to Arun Goel, CEO of the DHFL real estate venture capital fund, these markets have been due for a correction for quite some time now.

"There was a lot of speculation in real estate, given the excessive liquidity in the market over the last two years and this had pushed prices to unreasonable levels in suburban Mumbai and Bangalore. Gurgaon and Noida had also seen such surges but they have already seen a downward corrections."

In the past one year, residential prices in suburban Mumbai and Bangalore had risen sharply, in some cases by as much as 30-40 per cent. In Mumbai, areas such as Bandra, a western suburb, has seen prices touch the Rs 1 crore (Rs 10 million) mark for a residential flat, which was fetching Rs 65-70 lakh just a year ago.

One reason for this downward correction, according to analysts, is the combination of rising interest costs and uncertain yields from the stock market. They point out that much of the real estate boom of last couple of years was fuelled by earnings from the stock market which were then ploughed into residential properties, first as a safer investment and later as the market began to boom, for higher yields.

As a result, analysts point out, the biggest setback in the current situation would for mid-market buyers who were planning to invest in apartments as end-users.

Said Niranjan Hiranandani of Hiranandani Constructions, "People who were planning to take loans up to Rs 35 lakh will now have to consider. Given the rising interest rates, they may put off their investment plans for a short while or opt for a smaller investment."

Hiranandani also indicated that builders themselves are likely to offer softer prices over the next few months to entice buyers and off-load existing stock.

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Gayatri Ramanathan in Mumbai
Source: source

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