Where are the price cuts?

The government's recent stimulus package and the Reserve Bank of India's (RBI) interest rate cuts have once again raised hopes that buying a house would become feasible. But while banks have complied and brought down their home loan rates, the response from developers, in the form of price cuts, has not been forthcoming.

According to Asha Lata, a Delhi resident, who presently lives in a rented flat and plans to buy one soon, "After the announcement of the two stimulus packages by the government, I thought it would become easier to buy a flat in the National Capital Region (NCR). Several builders have announced price cuts in newspaper advertisements. But when I went to the booking office of Gardenia Square in Indrapuram, I found that they were asking for additional amounts for finishing the flats and for parking space. Together these charges amounted to an additional Rs 6 lakh over and above the advertised rate of Rs 32 lakh." Like Asha Lata, thousands of potential buyers across the country are discovering that the price cuts being announced by developers are mere fiction.

There are two reasons why despite lower home loan rates, the housing market has failed to revive. One, due to the slowing economy, buyers are not sure about their cash flows, and hence don't want to take on the burden of a home loan. And two, property prices have not fallen sufficiently to buy a flat.

BANKS KEEN...

To a large extent, bankers are ready to do what they can to ameliorate the pains of buyers in the real estate sector. T.S. Narayanasami, CMD of Bank of India and chairman of Indian Banks Association, explains that they are set to support the real estate sector as per the directives of the RBI to relax provisioning requirements. "We are more considerate when clients from this segment come over for a roll-over of their credit lines," he says.

However, he adds: "We have expressed our view to the government that the home loan package is yet to take off primarily due to high property prices."