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November 23, 2008

"Builders can't hold prices much longer"

Businessworld has an article which indicates that the damp Diwali sales could leave builders with no option but to cut prices - something they have been desperately resisting.
Developers had hoped Diwali and the festival season would turn their fortunes. Many of them had borrowed funds at very high interest rates — ranging from 20-36 per cent — to complete projects in time for Diwali or to service previous debt. But very few sales have been reported.

...“There is no substantial cut in the builders’ rate cards,” says Arvind Pahwa, managing director of JP Morgan Asset Management Real Estate. “There is some reduction, but considering prices have gone up 300 per cent over three years, this is not good enough,” he adds.

...Some builders have taken the cue and are planning lower prices to move sales. A developer that has several hundred ready residential homes in central Mumbai, disclosed Vakil, has decided to let the broking house do a price discovery and market his project, after witnessing virtually no sales for several months. “We will open sales for the residential project at Rs 11,000 a sq. ft in two weeks in a locality that has seen a Rs 27,000-30,000 per sq. ft market. This will get the market going and hopefully put pressure on others to cut prices,” he says.

Related: CNBC interview with Tushar Poddar of Asia Economics Research unit of Goldman Sachs which has published a new report predicting a 30% correction in the Indian residential market.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in