The Market Gets Shaken Up. DLF Sends Shivers down the spine of Builders
Well this was something badly needed! We have discussed, recently, the reluctance of Hyderabad Developers to bring price down. What we have seen is Rs.200 or 200/sft discount and that too buyers were forced to wait for ages to rate come down though demand was trundling down faster than one of those Disney Land Roller Coasters.
In our most recent report, we had commented that the demand would not come at all since the Builders will not reduce price drastically.
BUT we were not prepared for the DLF coup. What they have done is truly commendable. Their Project near Kokapet was struggling to see any response, though it was launched 6 months ago.
Shock and Awe!
Early this week, DLF simply let it go! Brought base price down to Rs.1850/sft to 2000/sft (depending on apartment size. Smallest flat at Rs.2000/sft, larger one at 1850/sft) PLUS amenity and Parking costs.
The pricing could be a ploy to bring people back to booking habit and then raise price. Whatever be the strategy, the DLF move has created Shock and Awe among the builder community. Its like the sudden attack by American Missiles during early Iraq War. Truly numbing experience for the builders here. Will new Project like Indu City in Nizampet Road at Rs. 2700/sft be even looked at?
Incidentally, there are some projects which have given construction contract to L&T at Rs.1950/sft. That is excluding land costs, site development, approvals, design etc. To break even they will have to sell at least at Rs.3000/sft. The future of such projects which have taken 10 to 20% booking, will be in question, unless they totally overhaul the structure or shut down projects for long period of time, till prices look up.
Though DLF may actually book only a small part of the total inventory at low rate, the market is not going to agree to higher rate, at other projects for sometime, though other older Projects may have their own valid reasons for the higher price.
Hyderabad builders are totally demoralized and is in a state of utter shock. Many are reduced to nervous shivering. Its going to take time for the industry to recover and the impact could be far reaching, unless DLF suddenly pulls up and raises price substantially.
Effective cost
Effectively, the rate for 5th floor ranges from Rs.2325 to 2500/sft (if amenity costs are added for an East facing flat ) excluding car park cost of 2L. (Incidentally all Projects charge amenity costs separately above base rate)
The people booked earlier at different projects @ Rs.3800/sft + amenity costs of around 10L, to get 1 flat. With same total cost, in DLF Project can fetch 2 full fledged Apartments.
Impact on Buyers
The effect has been dramatic and remarkable. They had opened only 2 Blocks (C &E) for booking and company has been virtually flooded with booking.
As we had always maintained,
there is huge underlying demand from people working in Hitec City/Guchibowli. They were
unable to book for last 1.5 years since the price was high and the market showed signs of cracking but never really cracked.
For people who were looking for good deal in Gated Apartment Project, the offer by DLF has come
as a pleasant surprise.
Early Bird Pricing
The information that we have is that the
Early Bird offer is limited time, limited units offer. Up to when and till what number, no one has confirmed at DLF. Based our discussions with others builders, architects etc what we understand is that the
rate is absolutely non sustainable. Also the
construction is likely to be directly by DLF, which would reduce costs since a layer is avoided.
Recommendation
We had not recommended the Project immediately, since we had to check regarding the project risks. Especially, with all large listed Real Estate firms under cash flow trouble due to extremely low off-take. The Legal aspects of land was not clear, earlier.
Based on our review,
we feel that one could take this low rate, after evaluation by individual buyers
- The formal Allotmenet application by DLF which they have released (on 7th Feb 08) clearly brings out legal status of the Project Land. Buyers need to commit, only of they understand and appreciate the legal aspects
-2 Blocks (200 apartments out of 500 in Pahse 1) will anyway be built since booking is extremely good in these 2 Blocks. So those in the
first lot, may not have construction risks.
-The Company is offering
delay penalty of Rs.5/sft per month to buyers. Delivery is Mid 2011.
-All payments are in white. Basically 20% need to be paid including advance and balance can be by loan.
-There are proper procedures and paper work
-Even if we
leave out IT sector job addition, there would still be at least 25,000 jobs added in Guchibowli
by ICICI alone. A truly Gigantic structure is fast coming up opposite to Polaris and beside CA. This 25,000 seater unit, will be the only back-end facility of ICICI, with all operations across Indian cities moving into this.
Current projects around Guchibowli, including Aparna /Aliens/Bharat/Manthri/Aditay/terndset/Emmar and others do
not add upto even 6000 flats.
Comparison with Members' Project at Tellapur
The Society project would
much still be lower considering the effective rate of 2325 to 2500/sft at DLF (for pre launch booking units), on a one to one basis.
An exercise has already been initiated by the society to reconfigure the height etc to reduce costs. Architect is likely to come up with an
alternate proposal soon, considering the fact that price need to be very competitive.
Conclusion
Lets hope that rather than being
numbed, Hyderabad Builders will NOW wake up and face the TRUTH. The whole world is under severe recession. No amount of prayer is going to help!
They just can not wish away the fact..... The fact that there is no demand for houses, cars or whatever, at high prices. And the situation will ramain negative for may be few years. They have to buck up and face the reality, or be ready to get squashed.
So is this sudden price crash in One Project, forerunner to what is in the offing? Or will this just be an aberration? Only time will tell……
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