Nano Yes, Mercedes No
Harish Rao -
Monday, March 23, 2009 8:14 AM
Looks like there is atleast one real estate player that acknowledges the new reality. DLF. In an obvious recognition of a massive slowdown in the Real Estate sector, DLF has begun refunding deposits and initial payments of over 560 investors in their ambitious Chennai project. (Read details here).
Despite reduced prices, investors in the Chennai project remained skeptical about the project cost and progress. This coalesced into an activist group that brought about unpleasant publicity. I guess this reached critical mass and DLF had no other option than start the refund process. Selling 3500 apartments in such tenuous conditions must now be a gargantuan task for DLF. But atleast DLF has conceded that there is a problem. Its decision to slash rates to Rs. 1800 per sq ft (pre-2004 levels) in Bangalore reflects the new truth.
Buyers want Nano, not Mercedes
Unlike DLF, several Real Estate companies are still in the denial mode. I saw an advertisement for a project headlined ‘TGIR - Thank God Its Recession : Inflation Dips, Borrowing Rates Crash, Stamp Duty Reduced'. Such ‘Clever' headlines mask one fact - where is the price cut? Clients are just not buying into 5% or 8% cuts. What most home buyers are looking at is absolute rock-bottom, bargain basement prices. 30-40% cuts. Home buyers are looking for the Nano and not the Mercedes.
However, every argument has differing views. There are developers that think the worst is over and normal business would resume soon. Click Here and Here to read their assessment.
The markets are rife with rumours of developers borrowing funds at usurious rates and an almost complete inability to stick to project schedules. With a huge inventory of unsold flats and various works-in-progress, this pain is going to take a long time to subside. Let's hope there is no more pain for Ratan Tata. The all new Nano is here. All the best, Sir.