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Stimulus should be focused on buyers of homes
Source : The Hindu Property Plus Published On : 2009-01-24 City : Chennai

The slowdown in the economy has led to significantly reduced velocity of sales and the developers are reviewing their strategies

Generally, in a buyers’ market things are advantageous to the buyer, whereas in a sellers’ market the advantage is for the seller. What is the status of the real estate market now? “Currently we are in a buyers’ market hence it is the best time for a buyer to be out there, looking for the best deal and closing it out,” advises Mr. Kumar Gera, Chairman of CREDAI (the Confederation of Real Estate Developers Association of India).

He concedes that the slowdown in the economy has led to significantly reduced velocity of sales from August-September 08 onwards. The mood, therefore, among CREDAI ( www.credai.com) members at present is one of reviewing strategies, adds Mr. Gera, in a recent interaction. “Many new projects that were to be launched are still on the drawing board, and where projects are being launched the focus is on lower total price of the units being offered in the market. This lowering of prices is being done by way of reduction of size of units and or reduction of the ‘frills’ and amenities in the project.”

Excerpts from the interview.

Has there been any impact of the recent measures of the Government?

Yes. The liquidity and the lowering of interest rates have eased the situation, to some extent. Many actual users who seek residences for their own use are back in the market closing deals. There are however many who are still fence-sitters and therefore a pent up demand is silently building up. As soon as there is a    change in the sentiment and in the economy this demand will come forward and at that point will again push prices northwards. This is why the real estate market is always considered as cyclical.

Any specific demands that your Confederation is now pressing for?

Yes, we feel that a stimulus for the sector will help the economy. It is urgently needed as buyers are currently sitting on the fence waiting for a turnaround in the economy. There are numerous industries and services in the country that get impacted with construction activities; in addition, about 10 million skilled and unskilled workers are dependent on construction in the real estate sector.

The stimulus should be focused on the buyer of homes. Therefore, government should, for a restricted period of time, encourage buyers by incentivising them. This can be done by tax breaks for both purchases as well as rental housing. If this is a ‘limited time offer’ it can revive a slowing down economy.

Are there best practices of certain States that you would like to see emulated so that real estate development is enhanced?

In the current times State as well as local authorities need to look at ways of reducing the burdens of duties, taxes, fees and levies on the sector. All these ultimately add to the total cost a home buyer is burdened with.

In addition there is a need for expeditiously sanctioning plans for projects. Delay in sanctions adds significantly to end costs. The authorities also need to create infrastructure in future developable areas well in advance, as has been done in Ahmedabad.

Some States and local authorities are proactive on some of these issues; it is desirable that they be proactive on all the issues as their revenue is linked to the growth of housing and construction of real estate in many ways.

On the common myths about the industry…

There are many myths about the real estate industry. One of the most important ones is a perception that it is the developer who is responsible for increasing prices. In fact price is a product of input costs which includes land plus materials and service costs plus sanction and impact clearances.

It must be kept in mind that the land component is not a fixed price (regardless of the cost to the developer), as input costs vary, be it cement, steel or land cost in the area; the price per sq meter of the real estate will also vary.

There is what is known as a ‘replenishment cost of land’ that is always factored in while fixing a price for sale. Thus as land values in the surrounding areas increase or decrease the developer has to tweak his end price so that he continues to be in a position to afford to replenish the land consumed in his next project. This method of pricing is followed by professional developers who are in this business on an ongoing basis.

How far away is ‘affordable housing’ for the common man?

Affordable housing is housing for various segments of income levels families. Thus there is a need to identify housing cost to a family based on its ability to bear the burden of EMI + utilities in light of the income of the family.

Generally, the affordable outgoing can be about 35 per cent of the combined family income. With these parameters there are affordable options in many towns and cities but generally starting from a combined family income of not less than Rs 3-4 Lakh per annum. Obviously the level rises as we go into the metro cities.


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