Builders resorting to distress sale?

In another report appearing in Times of India, Alka Shukla paints a not so rosy picture for the real estate industry.
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But here’s the catch – you can avail of the sale offer only if you make a bulk buy of not less than 10,000 sq ft area
Alka.Shukla timesgroup.com

Hiral Shah, who has been scouting new residential projects in Kandivali to buy a house, got two rude shocks. “No one is quoting less than Rs 1.2 crore for a 1,000 sq ft house in Kandivali! And surprisingly, I also discovered that almost half the flats I saw in the two new projects were vacant,” said Shah.
 
As if echoing his find, a recent survey by property research firm Liases Foras has revealed that there are 80,000 houses lying unsold in new projects across the city.
 
Even as developers maintain that sales are brisk, crevices are beginning to show up, and one indication of this is that some developers are resorting to distress sales – disposing of homes by offering as much as 40-50 per cent discount. Zen Towers in Tardeo is a case study. Set to complete in December this year, you can buy space for Rs 15,000 per sq feet as opposed to the market rate of Rs 25,000.
 
But here’s the catch: you must make a bulk buy of at least 10,000 square feet.
 
“The market is over-heated, and with a price correction being anticipated, investments are drying up. Though big builders can hold on, it is the small players who have started to feel the pinch, and are creating distressed assets even as market sentiment is positive,” said Atul Khekade, partner, Netz Realty, a property consultancy firm that has sensed opportunity here.
 
It has created a pool of 30 such distressed assets in South and Central Mumbai and is marketing them to NRIs and High Networth Individuals.
 
Experts say only about 10,000-12,000 units have been selling in each quarter this year, as against 21,000 between April-June last year. No wonder pressure is building up.
 
If a 22-storey tower in South Mumbai’s Nagpada area is available at Rs 8,000 per sq feet – as against the market rate of Rs 15,000 per sq feet – provided 10,000 sq ft is bought, another project in Andheri (W) is selling for Rs 10,500 per sq feet, almost 30 per cent lower than the market rate even if you buy just 5,000 sq ft.
 
A builder, who is selling bulk stock at 40 per cent discount, said on condition of anonymity, “As big builders go on increasing rates for their projects, the average market rate is pushed up. They get funding through FDIs or big private equity firms. But when rates reach a brink, even investors who fund small projects like mine become wary. One Gujarati investor group that had promised to pump some money into my project backed out. Now I am desperate.”
 
Real estate analysts speculate the cracks could widen. Pankaj Kapoor, Managing Director, Liases Foras said, “Creation of distressed assets is an indication that the residential market will undergo a correction, which could be to the tune of 25 per cent in the short term. This is not just because property prices are unrealistic, but also because a chunk of flats are being traded by investors instead of being bought by actual users.”