There have been several instances noticed where compromise has been made on the square feet area of the house. For example, balconies have disappeared from floor plan, 1000 sq. ft homes are being converted to 850 or 900 sq. ft. in a bid to make space for more apartments in a block, 544 square feet, single bedroom apartments which had practically disappeared are making a come back!
Property prices have been on a slow but steady decline over the past year and a half. Experts predict that this trend will continue and one can expect a 20-25% further drop in prices in the next year or so.
While interest rate cuts by banks have been comparatively faster in being implemented, largely through the consistent efforts of the RBI, the builder community have been reluctant to follow suit with ready price cuts, even when the uncomfortable truth remains that there is no choice in the matter.
Cutbacks and compromises
Though the initial interest rate cuts and a discounted interest rate for the initial year introduced by some banks, resulted in a lot of loan transfers, new loans did not pick up pace on the expected lines. Another fact that contributed to this factor is the prevalent grim mood of the job market. People are wary of taking on new debt liabilities while struggling to meet the existing commitments. Builders who had been concentrating on high income groups and premium housing needs are now stuck with incomplete projects and lack of funds.
The builders sensing the buyer’s mood later started to relent and made attempts at slashing property prices. Prices have definitely started to slide in favour of the buyer. However, there have been several instances noticed where compromise has been made on the square feet area of the house. For example, balconies have disappeared from floor plan, 1000 sq. ft homes are being converted to 850 or 900 sq. ft. in a bid to make space for more apartments in a block, 544 square feet, single bedroom apartments which had practically disappeared are making a come back! So, there have been a lot of cutbacks from the offerings of several builders to enable slashing of prices and yet not make deep dents in their profit margins.
On the other hand, builders have also entered into tie-ups with banks to offer discounts in the former of special lower interest rates, waiving of the processing fee, slashing downpayment rates etc., apart from other discounts of 10-25% on the actual property from their side.
Market reports are suggesting a slew of new launches announced have a price correction of nearly 30% in and around Mumbai and Chennai.
What needs to be done?
As price cuts are now a visible reality for builders they need to make the most of the existing situation and identify new opportunities to counter the challenge of debt and losses they are currently facing due to the credit crunch in the present and the realty boom of the past. A bit of innovation, some significant changes in outlook and proactive help from the government could pull them out of the current mess.
Innovation could be introduced in many ways. New building materials that are more cost effective could be used, for example use of prefabricated cement blocks can reduce cost by around 10-15%. A possible tie-up between CMDA and private players are in the discussion stages and there is dire need for mass housing needs for lower and middle income groups, which can provide some relief for private players who are currently struggling to finish projects. Recent statistics reports suggest that the urban population currently at 328 million is rapidly increasing and will touch 576 million in 2030. This means there is going to be a significantly huge demand for housing. So builders can take heart in the volume of requirements and adapt their real estate strategy accordingly. Builders are also expecting the government to pitch in and bring down stamp duty charges, taxes etc. to make price reductions more feasible.
A strategic approach to affordable housing
A methodical analysis of income profiles across sections should be matched with housing requirements. As in a fairly accurate estimate has be arrived at with regard to the price segments that are possible for the different income groups and depending on the percentage of population in a particular segment, housing requirements need to be planned and accommodated. This can be possible only if the concerned authorities and builder groups get together and formulate a plan of action based on surveys and recommendations. As housing is a key subject during the current elections, things are being implemented at a faster pace. In fact, one such development in the right direction involves a task force set up by the housing ministry in Jan 2008, with HDFC chairman Deepak Parekh in the lead. The committee has come up with significant ideas like a revamp of State housing boards, upward revision of FSI (Floor Space Index), making available land conducive for construction etc. More such evaluations should be brought to the table for discussion and accordingly new plans should be devised and implemented to evolve from the current situation.
This is a time for review and change. The learning gathered from the past year and a half should be the basis for a brand new start. The stage is set for a complete change in the real estate scenario that is more “real” and “affordable” to enable everyone’s dream to own a home.
Thanks for the wonderful article
These bloody 1000 square feet apartments in Delhi & other cities are not even worth 15 lakh rupees in quality. Fie!
Dear Sir,
The article on "real" and "affordable" housing for all is commendable. As one who was with LIC Housing Finance Ltd., at Chennai for 5 years and a consultant now, went through it with interest. I agree with your suggestion that there should be a thre-pronged attack from the builder-community, the Government Agencies and financial institutions to make this dream-housing a realisable one in the coming years. I am ready to serve on an honorary basis on any forum to bring out good and workable solutions and suggestions to make all the stake-holders feel comfortable. Having spent a good part of my stay in US in the last 10 years, I am sure, as a developing country, India can do lot of good things to the common man if only everyone co-operates. K.R. Arunachalam.
Builders have not actually reduced the prices in fact they are trying to fool the public. Though they have reduced the per sq. feet rate they have increased other
charges substantially like Parking charges, Electicity charges, Society charges, Water connection charges, Solar system charges,Developmental charges etc. So the
talk of price correction , affordable housing etc should not be taken seriously.
dear, what actually price needs to be for all item ? is there any law prevailing where builder cannot charge more than the given limit ?
dear Friends,
this indeed is good eye opener for everyone who is planning to buy home .. its a good article and i will like to say million thanks for a nice article…
With Regards
sudhir
You have made a point here… One reputed builder in chandivili powai has cleverly hit on a marketing strategy … announcing a slash in price of 30% but increasing on above said amenities as well as giving a 40 % loading ie you pay for a 1000 sq feet flat and get 600 sq feet. he adds another sops like a flat and parking within 52 lac but parking is charged at 3.5 lac …. do we have any fourum to complain against such practices.
Aruna , u stayed US so u talk like some big guy as if u going to turn around.
Arunachalam returned from USA does not have a job, now dude wants to sit on honorary basis. real estate is different ball game here… here houses are not made out of wood, these are real concrete homes..
The governoment should have upper ceiling on each and every price tag may it be housing or anything else. The open economy, competition are all fake things.
The "value for money" concept is not being obeyed … and the apartment/ flats that we see around are never worth of the money we are spending nor there are
any standards to which they stick to !
The natures law " for everything to be perfect .. there needs to be a law ! " and the same is absent in Bharat.
Last week I went to Property Mela Where I saw about 4 to 5 Apartment upcoming in Bangalore city. In the ad they have given
that the flats are all furnished and can be occupied after payment. To my supraise I checked with one of the Manager of Group company,
he has arranged me a visit to see his consturction site. When I was above to finalise the flat then CEO interevened and said that the flats
already booked at much higher cost. Why do this happen is my question ?
The government must implement a law that all flats or house will be sold on Carpet Area & define it . All Agreements must be on this basis only.Buiders cheat you by words like built-up , live-able area ( where open space / terrace is included and nowadays in Mumbai they have something called flower beds) , floor area ,etc. Also though open parking is sold by builders this is not allowed as per law – but our government doesn't take any action on this. Like we have SEBI for share market we need to have an agency to see that all the laws are complied with ( standard agreements between buyer & developers/ builders) & a buyer can approach them if required. Otherwise we will create another speculative market out of housing.
A 1000 sqft. apartment's cost of construction comes to about Rs. 12 Lakh using conventional systems and high rise development. Once we go high rise, we need to
cater to the earthquake measures, shear walls, extra steel, elevators, fire escape stairs, basement parking etc. This all leads to high cost of construction and hence
the houses become unaffordable at the base level. Then to make things worse, the builders have got used to huge profit margins and were selling the houses at a
high premium of over 100%. That is why they were hiring foreign architects, using fancy names and european looks etc. which are all superficial and do not match
the ground reality. So this bubble had to burst. Good it has. Good for the common man.
The way to go about is to use environment friendly low height affordable housing. If the builders are at a loss they can take inspiration from the works of Laurie Baker
in Kerala. Use less concrete, do not clad, use fly ash bricks, make small spans and use less steel in slabs, keep small openings, use cross ventilations, brick jaalis, do not
plaster on the exteriors, use rat-trap bond to construct walls ( uses 20% less bricks), do not put expensive door frames, expensive toilet fixtures, avoid making basements,
etc. This all can bring the construction of a 1000 sqft. house down to 6 – 7 Lakhs or even less.
Builders are here to make profit. Go ahead and make profit but be reasonable. Once this happens, it would be good for the environment and the economy of the country.
To view Laurie Baker creation, no need to go to Kerala, he has done work here in Delhi NCR. If one happens to visit Sec 11, Vasundhara, Sahibabad, one can have a dekho at his work of art….and at the same time do a comparision with the next door high rise apartment and see for themselves..how these homes are no less than any of the so called high society apartments with amenities ready to burn a hole in your pocket…
Interesting. But what is the fun. Existing boroowers are still paying the same amount as EMI inspite of revision of CRR etc. Especially the private banks like Standard Chartered etc. Is there anyone who can do something. Dont you think this tantamounts to restricted trade proactises?
Reading through the article & the discussion following it, the grim and dismal situation in this sector is prevelant. I agree, regarding the reduction of square feet area
and increase in other charges like parking etc. However, if someone does have to buy a house instead of a rented place, what could be the alternative for them….
What is needed, whether affordable or otherwise, is transparency in real estate market. Today, if I go to buy any product there is atleast an MRP attached to it. Nothing of that sort with a flat or house. It is left to the wisdom of the buyer or one's negotiating skills. No one is sure nowadays that the price at which one gets the flat is same as my neighbor gets it. Why can't we have regulatory bodies across all cities to publish an index prices depending on locality so that a fair price attached to what one buys. The same published price can be used by the banks to make lending decisions. I think it is high time our country moves to some transparency in real estate. Perhaps it may never happen as long as our politicians or Raju's have interests in real estate!!
Dear All,
Do not trust the goverment, builder, banks or media on giving you the right picture. The goverment is a fraud as evident in the last few years.
Most of the MLA's , MP or other people in high positions have consistently cheated the people and the media has been a mute spectator just
because they benefit from both the goverment and builders in terms of advertisement revenue and other benefits which need not be mentioned.
Consider the following:
The last 5 years real estate prices have gone up by 300% with no reasons.
Most of the project site I visited informed me most of the flats has been taken up by investors. (Who are the investors? What is the source of their income?)
Consider a scenario where the goverment along with the banks and builders created a situation which created artificial demand leading to price rise. You as a
person in need of an apartment buys at the market rate 2 years back and take a 75% loan and put in 25% from your saving. Come back to the current situation
where the prices are crashing like anything and as per current estimate prices are lower by 30-40 % and there are no buyers. Further more the market will
correct an additional say 20-30 %. See you have lost your initial investment of 25% and bank is scared of lossing their principal of 75% and they start chasing you
for additional up front payment of atleast 30% to cover their neck. But then who will take care of your investment. You have already lost 25% of your initial
investment and you have a liability of 75% the real value of which is only 50% and the bank is chasing you for up front payment and your job scene is dice
and you are married with 2 school going kids.
What will you do? Will the goverment help you? I you believe so then thing of the condition of the farmers in vidharbha who are committing suicide. Will the bank
help you? Dont day dream. Who's at fault?
true in the very sense.
This market bloated like a balloon in the last 5 yrs , which will burst very soon.
Dear All,
What we see in Pune is different situation. I went to buy a 2 BHK in Feb 2009. Builder quotes me 27 lacs. I told him 26 lacs. My friend has baught the same flat for 30 lacs in April end and for 31.5 lacs in May. PBAP and other builders are saying that prices are going to shoot and I see the attitude of the buildes. They are intentionally increasing the price.
When you go to book a flat of 1000 sq. ft….what u end up is with 600 sq ft. living area or rather Carpet Area…. and when you negotiate you don't look for the living area or go to measure the actual area between the walls during the construction stage or ready possession….and mostly all get fooled on the sq.ft. unless the builder is reputed and sticks to the plan. All buyers should be cautioned to check the actual area of living from the "built up" for example 1000 sq ft. and calculate the 60% physically and get details of the 40% utilisation in walls, staircase, flowerbeds wh, etc…which the builders are experts in fooling the buyers !!
India/Indians could choose to learn from how housing operates in other countries that have build better infrastructures. The construction techniques used in United States are much less expensive and much more quick. It is common to see a house being built from scratch within a span of 3-4 months. The houses are built primarily from wood (yes, even apartments/structures upto 4 storeys) but they last even up to 200/300 years !! Never heard of water seeping from the 3rd floor to the 2nd floor (common problem in flats in India !!). Another advantage is that wood house are better insulated and do no need as much heating or cooling as a brick construction structure does.
In the unfortunate eventuality of some natural destruction like hurricane/earthquake etc, the casualties are much lower than in India because the sheer weight of concrete kills more people. Being easier and less costly to build, people get back to normal much faster as well in this environment.
What is the harm in learning new construction techniques from another country in a world of globalization ! Indians need to stop lamenting about the woes and start seeking real solutions from other people who have found the solutions.
We have spoken about eberything from prices going down to increasing of FSI and all…. how ever the main criteria which is hurting the middle class or people with
jobs is that many builders are asking for black money which is cash. in some places the ratio is 40% to 60%, i don't know of any salaried person has so much black
money. please explain as to how we plan to get dream houses to all the people and even if we do is it advisable to generate so much black money, wher the
benefits are none other than builders. Imagine i withdrawing my accumulated salary for years and giving it to the builder, creation of balck money from white.
Is the govt doing anything about this mess?
The problem is real estate is also speculative in nature like commodities. The prices go up and come down. The the actual value goes up it will neverthless generate some black money
Real estate as an investment at current prices is suicidal unless you want to burry your cash as you can't put it elsewhere. Within next 2-3 quarters, revinue stream for
the builders will almost completely dry-up as they will wind-down big projects started 2-3 years back. Already their revinues are down 60-70% and profits down by
80-90%, they are near death unless they accept the fact that can't fool the people any further (offcourse there are still some sheeps who fall for their gimmics).
Look at Tata Housing announcement that they would build houses in 4-6 lkhs range in big cities with a cost of building at 600-700 psft. This is quite possible since
many walls, floors/ceilings are all shared reducing material costs by atleast 30% compared to invidual houses. Additionally they buy the material at bulk rate, make
things in bulk and thus reducing per unit costs.
There are no bidders for many of the BDA (Bangalore) site auctions recently simply because BDA expectations are higher than market prices, there is hardly any
demand at that rate. Just take round along the rin-road in Bangalore, more than 50% of the buildings are un-occupied. Even in whitefield there many modern
buildings not occupied for the past 3 years. Many small businesses kind of held thinking that they could ride-out the recession but finally giving-up creating new vacancies
Because of desperation with builders, govt actions like new mega layouts regularization of illegal sites/layouts, supply is going to increase, because of lay-offs, salary
cuts, increase in other expenses, increase in taxes, IT scanners, higher base prices, deman will simply vanish. Builders are getting squeezed from both supply sides and on
demand side, will finally be forced to accept reality of sustainable 10-15% margin. With these realities, 2 bedroom flats of 700-800 sft should be available for less than 10 lakhs
One reputed builder in chandivili powai has cleverly hit on a marketing strategy … announcing a slash in price of 30% but increasing on above said amenities as well as giving a 40 % loading ie you pay for a 1000 sq feet flat and get 600 sq feet. he adds another sops like a flat and parking free within 52 lac but parking is charged at 3.5 lac …. do we have any fourum to complain against such practices.
He has managed to rope in a lot of costumers……….. JAGO GRAHAK JAGO ……..
NAHAR.
While DLF have been slashing their apartment prices on some of their projects by almost 30%, when its close rival Unitech Ltd
going to do so on their "Best in the world" products so as to be within reach of those who dream of them.
Hi!
Who are these EXPERTS who are predicting a further fall in prices? You should get your information checked before publishing such an article. With fall in prices, there is a fall in area and a fall in quality of construction! People who buy cheap houses are looking at only short term expenses (i woul not even say investments)
Could one of the factors for the downward real estate prices also be due to unrealistically high prices for flats coupled with poor quality buildings
as seen by some of the leading players in the real estate market?
The Real estate price is not going to go up atleast for the next 2 Years – that means its going to go down by 20-30% more. The prices currently are well over a common man's earning.
Pricing of Flats around 20 Lakhs is affordable by a common man (Assuming a common man's salary is around 50,000 to 60,000 Rs/Month) that means a EMI of around 20,000 to Max of 25,000 Rs/Month iis affordable. But Flats are priced well over 50 lakhs…that means EMI of 50,000/Month…How do you expect a common man to buy Flats in this range
Will the builder really accept the current situation and ready to take a hit on the profit margin?
This is the million rupee question…….unless of course he has no other way out. Now with Indian Govt. bailing out the Real estate industry by way of restructuring their loans and also due to their ability to raise funds in the current booming stock market the builders/promoters are more comfortable.
But finally the demand or the buyers will have the last laugh!!! If they are ready to wait it out ( only a a couple of quarters…) then time will be on their side. Anyway they are in no hurry….they are not investors looking for quick resales…they are in it fo the long haul!!!
So…here is what the time (of next 2 quarters ) will do…
1. It will literally drive the builders to go nuts….
2. They eventually have to go on their knees..begging for buyers to consider their offer ( ofcourse a drastically reduced…but reasonable for buyers with a 10% margin or so..)
3. The builders will realise that it has to be a win-win situation for both buyers and sellers as they are no longer in a situation to be in driving seat to dictate terms…
4. So finally the buyer gets a win-win offer which he cannot and will not miss.
That's the way it balances out….
So guys/gals….have patience. In the mean time take out your rants…let everyone know who is the boss….
This is a very informative content. I also agree with your post title and your really well explain your point of view. But owning a home is always a distant dream.
Hi Sankrant Subramanium,
Don’t lose heart, owning a house these days isn’t a far fetched dream. Home Loans help you all the way through and a Home Loan Insurance will back you up as well. Read this article for more information.
Be sure to calculate your EMI and things will fall in place. Here’s the EMI Calculator. You can check your eligibility for a Home Loan here.
All the best!
Cheers,
Team BankBazaar
This is a very useful informative Content. Thank you for providing the good information , But taking the home that is very crucial thing in life..
Hi Techno Corps,
We’re glad we could be of help. Keep reading our blog for more insights into the world of finance.
Cheers,
Team BankBazaar
Thanks for sharing such nice blog.
Hi Anna,
Glad you enjoyed reading this one. Have a nice week ahead!
Cheers,
Team BankBazaar
Very nice article and useful information for us.
Hi there,
We appreciate the feedback. Thank you.
Cheers,
Team BankBazaar
Thanks for the article. Very informative.
Hi Shoma,
We’re glad you found the article to be of great use. Keep reading our blog for more insights into the world of finance and keep those comments coming! 🙂
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Team BankBazaar