Pune realty rates won't drop further: PBAP
24th November, 2008
The Times of India
Pune realty rates won't drop further: PBAP
The Times Of India
24 Nov 2008, 0307 hrs IST, TNN
PUNE: Dispelling speculations of a possible reduction in realty prices in the city, the Promoters and Builders Association of Pune (PBAP) stated on Sunday that they have already bottomed out and it is highly unlikely that developers would lower prices further.
The PBAP stated, "Prices in Pune have already corrected to the maximum possible extent and, in some areas, the correction has been as much as 25 per cent."
"The majority of the supply in the property market is in the outer periphery of Pune. The rates here are in the Rs 3,000 to Rs 3,500 per sq ft range. When compared to most other cities, the price range is reasonable considering the proximity of the locations to the city centre. On an overall basis, Pune has seen a long-term trend of increase in the specification adjusted property rates of only 11 per cent to 12 per cent per annum over a ten-year period. Many developers have already reduced rates by 10 to 15 per cent and some as much as 25 per cent," the statement said.
PBAP's stand on realty prices in Pune has come in the wake of a recent statement made by the Confederation of Realty Developers Association of India (CREDAI), which led to a general feeling that all realty estate markets across the country would see a further price reduction. The builder's association obtained a feedback from its members and came to the conclusion that most developers, over the last few months, have already reduced their rates in response to the PBAP's call to fix bottom rates. The move had taken into account the subdued market sentiment and was in anticipation of the PBAP exhibition in October.
Elaborating on why the prices were unlikely to come down further, the PBAP stated that traditionally construction of residential projects was funded by customer advances. However, the current slowdown has led to a need for developers to raise construction finance. The problem has compounded, since the construction finance rates have increased from 11 per cent to 17 per cent over the past few months, that too in the few cases where construction finance is available. The statement stresses that the increased cost of finance needs to be factored in the overall project costs.
"While inflation has impacted the cost of construction substantially over the past few years, the current downturn in inflation has not seen any significant reduction in material costs. Steel prices came down to reasonable levels and have already increased on various counts, including the government raising the import duty. The net impact of the steel price reduction currently stands at an average of Rs 30 per sq ft. The depreciation of the rupee has led to an increase of 20 per cent in the cost of imported materials," said the PBAP.
On the local front, the association stated that in the last few years, the Pune Municipal Corporation (PMC) has increased the charges payable by developers for approval of plans by over 300 per cent. Also, the increase in the parking norms by PMC have further led to substantial increase in construction costs. "Around six months ago, the PBAP had appealed to its members to absorb the price hikes of input costs as much as possible and pass on only minimal increases to consumers in light of the affordability concerns of customers," the association said.
The statement touches upon the issue of the steep increase in interest rates that had affected customers' purchasing power over 18 months ago and, in turn, led to a slowdown in the launch of new projects. At present, the overall inventory of flats has dropped to four months supply. It will take time for the demand to be met by the increased supply leading to a demand-supply mismatch.
The PBAP stated that the government now needs to ensure that adequate liquidity is available in the system and, at the same time, aggressively push interest rates down. "The situation of the overall slowdown in the economy, due to the reduced off-take in the realty sector, can be turned downwards if all stake holders do their bit. While the developers have already reduced their rates, it is time the government and financial institutions also reduce the interest rates," the statement added.