<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[<p>The sale of 135 acres of land of the now defunct auto company PAL-Peugeot has had an interesting course. In a recent auction of the company's land in Mumbai's distant suburb of Kalyan ordered by the Bombay High Court-appointed court receiver, Gammon India offered the highest bid of Rs 601 crore. Neptune Group, which offered Rs 600 crore, was pipped at the post. <br><br>The Bombay High Court is yet to confirm the sale, but what is significant is that in the last round of bidding in April 2008, the highest price offered was Rs 676 crore by a subsidiary of Indiabulls Real Estate. Gammon then was No.2 with a bid of Rs 675 crore. The substantially lower price offered in the recent round of bidding indicates that land prices after the post-recession revival have still not touched the highs seen during the boom period.<br><br>Interestingly, Indiabulls's offer of Rs 676 crore did not go through because the court receiver had fixed a reserve price of Rs 1,650 crore. The ridiculously high reserve price — equivalent to Rs 2,855 per sq. ft for kutcha (undeveloped) land — is a reflection of the staggering expectations that prevailed during the boom madness. With no reserve price fixed in this round, it is likely that the court will accept the sale terms. "The price in this auction is more realistic and will allow Gammon to make some margin of profit after development," Naresh Nadkarni, chief investment officer at HDFC Property Ventures, told Businessworld.<br><br>There are interesting pointers in this for the general property market, and for the pumped- up residential market in particular. Despite volatility in the stockmarkets, and the continuing consumer resistance, property prices have steadily climbed through 2010. In fact, in many urban markets, they are now close to the peak 2008 rates. Simultaneously, we have seen a drying up of demand and builders saddled with increasing inventories.<br><br>This is supported by the data collated by property market tracking agency Liases Foras. In Mumbai, the average cost of a flat has climbed from Rs 64 lakh in September 2009 to Rs 88 lakh in September 2010, and the average unit price rose from Rs 5,743 per sq. ft to Rs 8,887 per sq. ft in September 2010. In response, total stock sold in Mumbai declined 17.6 per cent to Rs 8,375 crore from Rs 10,168 crore in September 2009. Net sales in the city, too, fell sharply to 12,170 units in September 2010 from 17,400 units a year ago.<br><br>Most builders concede consumer resistance is building up. "Demand has dried up in recent months," says Subodh Runwal, director of Runwal Group. Consumers believe prices have peaked and are likely to come down. A survey among potential home buyers by real estate website Makaan.com showed that 55 per cent expected residential property prices to fall by 20 per cent or more in 2011. This perception, coupled with an increase in home loan interest rates, has led to buyers postponing buying decisions.<br><br>"Pre-sales and underwriting trends are contributing substantially to the existing sales volumes. If we exclude such projects, the market looks extremely risky now," says Pankaj Kapoor, chief executive officer of Liases Foras.<br>So far, builders had been clinging on to the price line, despite the build-up of unsold stock. Speculation in the industry is that the steady cash flow from private equity investors and earlier advance sales helped cushion the pressure on builders to reduce prices. These sources seem to have dried up now and we are seeing the high price points finally cracking.<br><br>Builders often plead that they have little margin for reducing prices since the cost of land is abominably high. With land costs beginning to decline as the PAL-Peugeot sale indicates, builders hopefully will see reason and offer more affordable prices to home buyers. <br><br>(This story was published in Businessworld Issue Dated 10-01-2011)</p>
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Gurbir Singh is an award-winning senior journalist with over 30 years experience. He has worked for BW Businessworld since 2008, and is currently its Executive Editor. His experience ranges from covering 'Operation Bluestar' in 1984 to pioneering coverage of the business of Media & Entertainment and Real Estate for The Economic Times.