Recession or Recess?

rupjivihar-GovandiRecession or Recess?

According to the industry sources, property rates all over the country have started to converge into stagnation stag. But is it recession or just a recess to restart the rally.

By Dr Sanjay Chaturvedi

Real Estate industry is talking on correction period all over India. Brokers, especially, are absolutely convince that the market is set to fall. In many areas, they say, that the property rates have started falling. Accordingly, Goregaon, Malad, Mira Road, Vasai and Virar on western suburbs and Mulund, Bhandup, Kurla, Chembur and Govandi on central side have started stagnating the level of property prices.

Pune, Nashik, Noida, Jaipur, Bangalore, Chennai and Hyderabad are also feeling the cold wave in the property market, according to the industry leaders. Reason they say is hike in housing finance interest rates and unaffordable property rates.

Investors are, now, not buying and have stopped going in for more investments. Commercial stock are in the market for anything above the cost of investment. Practically, when no one buys, rates are stagnated at some particular point. That is what is happening today. The sale price have stopped further climbing up since there are no takers. Malls are worst hit. The recession started with them, while the exhibiting rates were much less then the actual investments made. Cash and Cheque portion of mall space deals are known to everyone in the trade. The market for commercial properties have already started to correct its baseless pricing.

It may be a recess. For the time being, investors wants market to show its actual colour. And after they sell off certain non moving stock, buying spree may start again afresh. It is also linked with the liquidity crunch in the economy and falling stock exchanges in the country. A lobby of investors do not want share market money to go easily from the real estate market. People who have invested in real estate from earning of share market wants an exit to pay off the liabilities created by them in the share market. Player in real estate market wants the rates to stop climbing up for some time so that they can capitalise on such panic sale. Big game plan is on the hands of few group of individuals and few finance companies who have entered recently in the trade. Builders, today, have never reduced its price anywhere in the country. Ready stock is not available still. Builders have sold to investors 30 to 50 % of his stock while in under construction. Investors wants handsome returns on the finished stock while they do not sale in the open market but through the builder only. Builder sale the sold stock to actual user by mounting another profit margin. Hence when the actual user buys the property he has to pay investor’s hidden margins which change hands five times during the time of construction.

It is nothing but a recess for the players. The rates may go up by October 2006 since many projects will be launched in August and by the time they come in the market for actual sale, the rates will certainly more then the today’s market rates. Builders have holding capacity since the project is financed by venture fund people and Mutual funds are searching for the projects. The sale price will be certainly include the interest rates or Return on investment money (22% to 25% of total project). Land and FSI cost is higher and purchasing is already finished for the second rally of property market boom.

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