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Economy Dec 5, 2012

Why realty exhibitions don’t make any difference for a buyer

By Sunainaa Chadha

Mumbai: How hot areNavi Mumbai and Raigad as real estate destinations? Very, says a brokerage report, pointing to an increase in footfalls at the recently held realty exhibition jointly organised bythe Maharashtra Chamber of Housing Industry and Confederation of Real Estate Developers Association of India (MCHI-CREDAI) in Navi Mumbai.

The exhibition showcased projects fromNavi Mumbai, Raigad and Panvelwith price points ranging from an affordable Rs 11 lakh to luxury apartments worth Rs 1 crore. Over 100 developers participated in andover 150 stalls were set up.

According to experts , the higher footfall witnessed here was in stark contrast to the poor response to a similar exhibition at the Bandra Kurla Complex in November.

"Right product (1BHK, 1.5BHK, 2BHK), right pricing (Rs3500-5000/sqft), excess supply & upcoming infrastructure continues to drive the property market in Navi Mumbai with renewed vigor,"said Parikshit Kandpal, analyst at Karvy Broking, in a research report, pointing at the increase in visitors at the exhibition.

Home sales have been falling steadily due to rise in prices and piling up inventory.

But there are others who think to make such an assessment looking at footfalls at an exhibition may be foolhardy, as footfalls do not always materialise into sales.

"Such exhibitions only create drama and hype in the property market when sales are plunging," explains Pankaj Kapoor, MD at property consulting firm Liasas Foras.

Home sales have been falling steadily due to rise in prices and piling up inventory.

The Reserve Bank of India is also not happy about the increasing realty exposure of banks.

Media reports said it had recently turned down banks' request to restructure loans to real estate firms, in its bid to force recovery of these loans. It was a move that would indirectly bring down the prices, as firms are likely to be forced to sell their unsold houses at below market rates. ( Read more here)

Already, realtors are facing a funds crunch as private equity firms are also not very interested in the Indian real estate. ( All about the funding crunch here)

In such a situation, only actual sales can help the companies. Such exhibitions are held to woo serious buyers by offering discounts.

But the moot question is how real are these discounts?

"Discounts and schemes are offered by builders to show that they are lowering prices, but in reality a 5 percent discount or a free car park is already priced into the final cost of the flat," said Kapoor of Liasas Foras.

It works this way. In the run-up to the exhibition, brokers in nexus with builders artificially increase property rates. At the exhibition, buyers are offered discounts in line with the increased rates. Buyers who fall for these discounts are duped.

This seems to have happened at the Navi Mumbai exhibition too.

According to online realty brokerage firm Groffr.com, property rates in Navi Mumbai shot up by 6-10 percent during August-October.

At the exhibition, the freebies offered were freeclub membership, car park etc. According to Karvy report, this formed 10 percent of the total cost of a flat.

Another key feature that Kandpal highlights is the change in the black money angle while deeds are signed.

"The balance has now tilted in favour of buyers with developers agreeing to close deals with full cheque payment though keeping options for investors who want to pay in black," he says in the note.

There is a catch here too.

Most of the projects showcased at the exhibition were in the Rs 4,000?5,000 per sq ft range, which is closer to the government-determined ready reckoner rates. This leaves limited room for developers to register sales deed below the rates.

Moreover, if you read between the lines, the rates that are showcased at the exhibition are for saleable areas (includes carpet area of house), built-up (area of walls) and super built-up (lobby, passage area) but not carpet area.

For example, if a 1,000 sq ft carpet area flat is sold quoting the carpet area price at Rs 1 crore, the price per sq ft will be Rs 10,000. However, if the same flat were to be sold on the saleable area, the area will go up to 1,500 sq ft and the price per square foot will be Rs 6,600!

Unscrupulous builders have been known to manipulate buyers with this difference to a large extent. Often a price quotation on a 3,000 sq ft apartment could mean a carpet area of anywhere from 1,800 sq ft to 2,400 sq ft, only.

So in effect, the buyer is actually paying the market price, rather than the ready reckoner rate.

"So while Navi Mumbai may still cater to the middle-class buyers, buyers should not be fooled. The reason such exhibitions are played up is to create an artificial demand in the market," an industry expert told Firstpost, on condition of anonymity.

The rationale: Politicians, builders, and the builder's body work in tandem.

Recently the developers' body Credai asked builders to lower home prices and sell unsold inventory so that the government adheres to some of the demands of the real estate industry.

"If there is pressure on Chidambaram to come out openly and ask banks to lend to the sector, despite several RBI warnings, and if Credai is openly asking builders to yield to the FM's demand, it means the builders are in serious trouble and inflows are definitely going to be a problem," the expert said.

Net Net: Don't be fooled by such expos. A price correction is inevitable.

by Sunainaa Chadha

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