The North-East monsoons setting in with a vengeance last month, not only dampened the celebration of the festival of lights in Chennai, but also rained on the developers' hopes of festival season sales — housing sales during October is at the lowest levels, say developers.

Market research by one large developer indicates Chennai has an average sales of approximately 8,000-8,500 residential units every quarter, approximately 2,750 apartments and independent houses a month. But in October, sales can't have crossed 1,400-1,500, says the developer.

BLAME GAME

When contacted by Business Line, a number of developers and representatives of housing finance institutions agreed that residential sales hit a low this month, while being unwilling to quote any numbers. It is the uncertainty in the domestic and international markets that is putting buyers off, they say. Buyers don't want to commit themselves to high-value and long-term commitments under the prevailing conditions.

One executive in a housing finance company pointed out that just the depreciation of the Rupee against the US Dollar, with the Dollar valued at Rs 50 recently, represents a 10 per cent concession for NRIs. But they haven't evinced any interest in housing.

“Funds are being repatriated, but aren't being invested,” a developer said.

On the reason for slow sales, of course, the blame is placed on the usual suspect, spiralling interest rates.

The 25-basis-point hike in policy rates announced by the RBI earlier this week, the last of several such hikes during the last year-and-a-half, has eroded the affordability of most buyers; housing loan rates have gone up nearly 25 per cent during the last one year. The culprit is the uncertainty in interest rates and not the hikes as such, some say. Home loan borrowers know they are likely to go through a few cycles of ups and downs. It is just that they are waiting for things to settle down before making investments.

But for Chennai, there are some more concerns too, say developers.

According to representatives of the Builders' Association of India (BAI), “Chennai needs one more boom,” to get the market going. Following the growth in IT and automobile space, which drove demand for residential and commercial space in Chennai, the market has hit a plateau. There are no major projects to spur housing demand — some hoped for expansions in the automobile sector, and new investments have been lost to other States. That is one of the issues, says Mr J. R. Sethuramalingam, Vice-President, South, BAI.

Land prices have shot through the roof within the city. There are no large projects for the mass market segments in the vicinity of Chennai. Within city limits, residential space costs around Rs 10,000-12,000 a square foot, which is beyond the scope of the middle income segment.

REASONS FOR FALL

Mr Prakash Challa, a past president, Confederation of Real Estate Developers Association of India – Tamil Nadu, attributes the reason for the poor sales to the uncertain times prevailing in the international markets, the high interest rates and slow market conditions at home. There is talk of a second extended slowdown in the developed economies due tothe Global Financial Crisis.

Also, another factor that has aggravated the sales drop has been the poor conditions of the stock markets. Investors plough in the profits into investments in real estate, and that accounts for approximately 25-30 per cent of the sales price. “That choice is closed for now,” he said.

But not all pin much importance to the low during October, which is a passing phase, they say.

Mr Ganesh Vasudevan, Vice-President, Consim Info, which runs India Property, a real estate portal, says property searches online show that buyers' interest isn't flagging. The daily numbers of enquiries for property ranges around 1,000-1,200, which is a growth of approximately 25 per cent during the last one year. “That is a primary indicator of demand,” though transaction volumes are definitely down, he acknowledges.

But the fall in October sales only means the quarter is off to a slow start due to immediate concerns, including the repeated hikes in bank rates that have driven up home loan costs. Buyers will commence purchases shortly, as RBI has also signalled that further hikes aren't in the pipeline. Also, home loan providers have stepped in with attractive ‘teaser' rates that will ease the entry pangs of high costs of loans.

An executive of a housing finance institution, with a strong presence in Chennai, says the drop was primarily in the first fortnight of October, while the second fortnight has been better. Ironically, a silver lining is the drop in supply of new projects in Chennai residential markets. With projects not being cleared by the authorities, supply has been hit.

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