Finally, Mumbai builders are unable to hold up prices and are offering steep discounts
Moneylife Digital Team 20 October 2010

After keeping prices artificially high over the past several months, Mumbai-based builders have now turned desperate to sell flats and are offering steep discounts

Pressure is building up on builders. Usually at this time of the year, builders are ready with various schemes to sell high-priced apartments in Mumbai to take advantage of the surge in spending during the festive season.

However, this year, flats are not selling. Though builders in Mumbai have tried to keep prices artificially high for all these months, they have now buckled under and have come up with lucrative schemes to push sales in the residential segment. Among their tactics is making a '10:90' offer.

Under this scheme, a buyer has to pay only 10% of a flat's cost and the rest after possession. Builders offering this scheme are ready to bear the interest burden right up to the time they are able to hand over possession of property.

Builders are taking the hit of interest during construction - which is a kind of hidden discount to the customer. This is very different from the situation when customers used to wait endlessly for a project to be completed and bear the interest cost of the loan they have taken. In those situations, builders even colluded with bank officials to get them to certify that the project had progressed much more than it really had, to get the customers to cough up more money.

The current '10:90' scheme is available for affluent buyers whose budget is between Rs2 crore to Rs5 crore. Indiabulls introduced the '10:90' scheme for a project located in central Mumbai. For this scheme, it has tied up with HDFC and ICICI Bank to provide loans to customers.

Mumbai builders have had extremely ambitious plans to build scores of towers in the central region of the metropolis. These towers were supposed to have luxurious apartments, commanding fancy prices. However, they were clearly unaffordable even for the rich.

To push sales, some builders are also offering cars to property brokers in addition to their brokerage if they meet given targets.

In another option, builders are offering highly discounted rates to those who come up with cash upfront. In one case, a posh apartment in central Mumbai is available for Rs16,000 per square foot for full cash-down payment - when the going rate is Rs40,000.

Even though the '10:90' scheme is attractive, "it is getting a mixed response so far as the offer is only for high-cost apartments," a real estate expert told Moneylife, preferring anonymity.

"Even though such schemes look great, buyers should take precaution as they are being offered for under-construction projects. The completion risks of these projects remain and one must check the builders' track record and financial strength before jumping in," added the expert.

Moneylife has been pointing out that high property values and interest rates, coupled with a lower loan- to-value ratio, are becoming serious obstacles for average homebuyers.

A survey conducted by ICICI Securities recently found that property prices have become unaffordable. According to the survey in which 3,839 ICICI Direct customers participated, 72% of the respondents believed that property prices were unaffordable and 79% perceived property prices to be high. However, a significant section of the respondents indicated that while affordability was a concern, it was manageable.

The survey showed that 48% of the buyers were interested in buying at current prices or were keen to see a marginal correction. The survey was conducted during June-July this year. The survey also found that a larger percentage of respondents in Mumbai and Pune felt that home prices were too high, compared to Hyderabad and Kolkata.

1 decade ago
1 decade ago
It is duty of Govt./regulator to intervene whenever the prices goes up unfordable for essential commodities/assets . here Govt. it self cooluding with big sharks to keep the prices high as these are helpful to keep parties funds high. Cost of the flats are notional which can be anything. The steep rise in real estate are in good for builders,investors, corrupt officials,politicians etc. Only needy persons i.e. end users are supposed to suffer.
P C Chacko
1 decade ago
The present real estate prices in all metro cities are unaffordable,ingflated unreasonable and higly profiteering by the big builders land sharks and crooked developers. The prices are 50% more thn the reasonable prices.The profit matrgin taken by builders are huge When flat or house prices increases the land prices also increase and it is a viscous cycle.There is no government control on builders and developers The area they mention is highly inflated It should be made mandatory to show the crpet area,builtup area and the super built up area Prices should be mentioned as per carpet area this will avoid the lloting made by the builder by mentioning inflated area.
Replied to P C Chacko comment 1 decade ago

Presently Builders are selling houses in 40~48% less than saleable area(carpet area).What it makes different whether he sale on carpet or super built up.If you want to buy on carpet area the prices of same house will go up 40~48% than offer value.The value of prices pushed artificially high.As told by one builder,we will increase the price to Rs100 every 10 days.There are two benefits,mainly
1)Customer are under stress or get panic.Those who need booked urgently.
2)The customer who booked house already also happy that there investment is growing up.
1 decade ago
MCHI only mocking their rule as in exhibition they are selling flats on super built up area. Politics and black money causing prices to go up n up. Swiss bank money also cmg in real estate, we shud all lodge complain on rbi official site.
1 decade ago
Replied to mak comment 1 decade ago
I think you are living in a world of your own hoping/predicting realty prices to drop by 50% or more.
Replied to mak comment 1 decade ago
I totally accepts with your views.It is beyond reach of middle class man.
Replied to ravindra comment 1 decade ago
Thankx Ravindra.
A Crash of both stock prices and Real Estate Prices are expected any time! Just like in USA some years back there was payment crisis of housing sectors, even Big Finance houses and Banks have gone into red!
Some people say its like Newton's Law of Gravitational forces: all that goes up must come down!
People say it all depends on various factors.....
Will it ALLOW to continue to mashroom hutments and enroachements like in MUMBAI CITY and suburbs ........Like what will be the policy of government about Free Housing to Illegal hutments and enchroachers.......
Replied to mak comment 1 decade ago
People say SRA SCHEMES are not actually benefting the Urban poor's housing problems..... as 90% all of them sell the flats or rent out and again. now again encouraged to make new hutments else where. So another builder will approach them and provide them another SRA'S housing and it goes on.
People say SRA SCHEMES are leading to big influx of Rural populations to URBAN cities like Mumbai, where govt. is providing FREE housing to Poors.
CAN ANY BODY TELL WHAT ARE THE SITUATION IN OTHER METROS LIKE DELHI, KOLKATTA, CHENNAI, and smaller cities and towns. Are AUTHORITIES are taking any actions to such illegal structures?
Replied to mak comment 1 decade ago
Well People say now the Authorities will have to take actions just like they have demolished illegal enchroachments at Girgaum Chowpaty.....As now rainy season is over and they have sufficient Manpower and Machinery to take actions and demolish encrochments in various locations in Mumbai city and more particulary near Railway Stations, Bus Stations and prime properties.
Rambabu Shastri
1 decade ago
No one knows. If the next FII wave pushes money into real estate companies, then the market will still hold up. The bottomline is that India is slowly becoming unaffordable for ordinary Indians. The government will fall by mid next year if they are unable to control inflation as a result of the Quantitative Easing the US is doing. I expect commodities to be the next big thing for FIIs
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