Builders cut apartment size and price to perk up demand in dull market
Mar 22, 2013
Source : The Economic Times


NEW DELHI/MUMBAI/BANGALORE: Builders have begun to bring down prices to prop up home sales in an abysmally dull market, gladdening the hearts of potential buyers.

About a month ago, Mumbai builder Lodha Group, which had bought DLF's Lower Parel land last year and launched a luxury project on the site, sold its entire inventory in 10 days by pricing the apartments at an 18% discount to the market rate. In all, 750 homes priced 3.5-6.75 crore were gone like hot cakes.

Another Mumbai builder, Godrej Properties, tried a similar trick in Delhi's upcoming realty hotspot - the Dwarka-Manesar Expressway. It sold all its 700 apartments on the launch day, when projects all around it are still chasing buyers.

"It's all about finding the right price point," says Anshuman Magazine, chairman & MD, CBRE South Asia. "In our main cities, real estate prices are much higher than they should be, and real prices should be lower," he adds.

But all that looks like changing for now. And it is the big builders who are taking the lead, forcing others to rethink.

L&T Realty launched Emerald Isle in Mumbai's lakeside Powai area at 15,500 per sq ft, creating a flutter in the area where the market rate is over 17,000 per sq ft. Nirman Realtors & Developers launched its project at Malad at a 20% discount for bulk buyers and sold most of its flats.

On the Dwarka-Manesar Expressway, Emaar MGF sold 250 units in its project Gurgaon Greens in just a week in January by pricing it at 6,000 per sq ft while other projects in the vicinity were priced at around 7,000 per sq ft.

Driving Volumes Via Disruptive Pricing

On the Dwarka-Manesar Expressway, Adani Realty, which launched its first project in the NCR, launched 500 apartments that got oversubscribed by three times within three days, says Chief Executive Officer Tarwinder Singh. "Several builders are driving volumes through disruptive pricing," says Abhay Khemka of Khemka Investments & Properties, a real estate brokerage firm in Gurgaon. "This is the right pricing. We are expecting others to follow suit."

Builders cut apartment size and price to perk up demand in dull market

In Bangalore, where sales in most projects are usually gradual, Provident Housing saw about half its stock of 548 apartments in a newly launched property Provident Harmony being snapped up in 10 days as the developer brought down the overall ticket size by reducing the size of the apartments.

"There is a new requirement from buyers, which is about right size and right price. Many builders make a mistake by launching large-sized apartments, making them unaffordable for buyers. We decided to stick to certain profitability by pricing it lower than competition," says Jackbastian K Nazareth, group CEO of Puravankara Projects, the parent company of Provident Housing. Lodha, which bought the NTC mill land in Lower Parel from DLF for 2,725 crore last year, got 1,300 applications for the 750 apartments it had launched in the project codenamed Blue Moon. "We wanted to challenge the convention in south Mumbai by offering luxury residences at ticket sizes up to 50% lower than those currently available," says Abhisheck Lodha, MD of the Lodha Group.

Home sales across the country have lagged in the past few quarters because of the overall negative market environment. Homebuyers have been sitting on the fence, waiting for prices to correct and that has put developers in a spot of bother. This has pushed up the level of unsold home inventory across the country to 5.5 lakh homes at the end of the December quarter, which would take up to 29 months to be sold at the current pace of absorption.

"Mumbai and the National Capital Region have been facing a problem of high price for a number of quarters, but now even affordable markets such as Pune and Bangalore are heading in that direction. Sometimes, greed takes precedence over efficiency, impacting both consumer sentiment and productivity of the developer," says Pankaj Kapoor, managing director of Liases Foras, a non-brokerage real estate research and rating firm that services clients such as HDFC, Deutsche Bank and Standard Chartered Bank.


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