NEW DELHI: Home buyers blame market speculators, not the rise in land and input cost, as the real reason behind the unabated rise in residential prices across cities, according to a report by property research firm Track2Realty.
Around 64% of the people surveyed in the top 10 cities blame the market speculators to be responsible for making the home prices unaffordable, while only around one-fourth agree that the rising input costs are making the houses costly.
Despite a significant slowdown in real estate sector across India over the last two years, the new launch prices have continued to rise unabated, ranging from 5% to 16%, on a compounded annualised price rise (CAPR), in the last two years, according to a recent PropEquity report. The maximum increase was witnessed in Gurgaon, with a CAPR of 16%, followed by Thane at 14%, and Pune and Mumbai at 12% each from January 2013 to December 2014.
Mumbai continues to be the most expensive city with weighted average price of Rs 16,000 per sq ft, followed by Gurgaon at Rs 6,700 per sq ft, a distant second.
"The real estate market will only become realistic when the demand will be driven by end users, which is not the case in most markets now," according to Ravi Sinha, chief executive officer, Track2Realty.
This is win-win situation for both developer and a speculator, who can be a big broker or an investor, and who treat homes just as a trading commodity. For instance, if a speculator picks up certain number of housing stock in a project at a soft launch stage for say Rs 2,300 per sq ft, with an assurance from the developer to formally launch the project at Rs 2,800 per sq ft, the speculator directly gets Rs 500 per sq ft price appreciation per apartment, and the developer in turn gets the liquidity to hold a chunk of inventory for playing the price game at a later stage, Sinha explains.
So, how can we weed out these speculators from the market?
Around 85% of the home seekers in the country maintain that one person one house should be made mandatory by the government, while the rest 15% maintained investment in the second house should be discouraged through incentives for investment in other instruments, to remove such momentum traders or speculators out of the ecosystem.