Cheaper homes coming your way?

Sep 09, 2012, 08:44 IST | Varun Singh

With investors and private lenders shying away from giving loans to builders in a slow economy, real estate experts say an impending reduction in home prices is due

There's reason to cheer if you’re a homebuyer. The slow economy has dried up loans that builders used to take from private lenders, which means that home prices will inevitably come down in the near future.

Even if lenders do give loans, the interest rates are high — up to three per cent per month. In return, private lenders are also asking builders to mortgage property that is two or three times the loan amount.

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Pankaj Kapoor, MD, Liases Foras, a real estate research company, claims that at a time when bank funding has dried up, Foreign Direct Investment in real estate has reduced and lenders are choking loans too, builders have no option but to reduce prices and sell flats. “Revenue generation via sales is the best option they have right now, because it carries low risk. The price correction in the market is inevitable,” he feels.

Real estate sources add that lenders have become very cautious. “In some cases, the interest rates are as high as four per cent per month, along with surety of property. It won’t be wrong to say that builders who used to easily get money at a reasonable interest rate are now finding it difficult to get easy cash,” says a source, on condition of anonymity.

Builders agree that funding is scarce, but they rubbish the prediction that rates of homes will come down. Mihir Dhruva, CMD, Habitat group, says, “Funding has become scarce and interest rates are very high, but builders have no option. After we buy land, we have to wait for atleast 500 days for the proposal to be passed. In that period, we sustain ourselves through loans from lenders. But reducing the price isn’t an option.”

Another builder from Navi Mumbai said, on condition of anonymity, “Before giving loans, lenders seek allotment letters, and check out the property. The number of pending proposals in the past few years has affected the business adversely. If proposals had been passed in time, we would have had ready projects to sell, and a cash inflow would have begun. But that is not the case.”

Investors too are shying away from projects, creating another financial crunch for builders. Prakash Rohira of Kkarma Realtors opines, “Many investors shy away from builders, who now have no option but to go to private lenders or enter into partnerships with other interested parties. The simple act of reducing prices instead hasn’t got through to many.” 

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