Of the 26 cities surveyed by the National Housing Bank (NHB), as many as 22, including Delhi, Mumbai, Pune, Bangalore and Chennai, saw a drop in property prices during the April-June quarter, compared with the first quarter of this calendar year. This is the first time in recent years that residential unit prices have fallen in so many big cities and could be a sign of developers resorting to cuts to spur demand in a slowing market.
According to the NHB Residex, a similar downward trend in prices had last been seen in the July-September quarter of 2011, in 10 of the 15 cities surveyed, including Hyderabad, Lucknow, Patna, Bhopal and Kolkata. But, even then, big cities like Delhi, Mumbai, Bangalore, Chennai and Pune were not among those seeing price cuts.
"There is room for some more price correction," NHB CMD RV Verma told Business Standard.
"We have seen a price decline across cities - it was due for some time. It shows developers are now prepared to take some cuts in their margins, despite a rise in input cost. This will enable them to clear their huge inventory, have liquidity and increase demand," he said.
Analysts tracking the sector say price fall was so far restricted to Tier-I and -II cities but this could be the beginning for metros and other major cities.
"NCR (National Capital Region) and Mumbai have started feeling the pinch already. Though official rates may not reflect the downtrend, backroom negotiations are happening in several cases, leading to price cuts," a Gurgaon-based broker said. "The more you bargain, the higher the chances of price cuts, as developers are desperate to sell their stock," he added.
According to the NHB Residex, compared with the previous quarter, the biggest price fall in April-June 2013 was seen in Ludhiana, of 5.99 per cent.
It was followed by Indore (5.64 per cent), Vijaywada (5.43 per cent), Hyderabad (4.55 per cent), Kolkata ( 4.06 per cent), Guwahati (3.92 per cent), Kochi (3.37 per cent), Patna (3.29 per cent), Coimbatore (3.26 per cent), Ahmedabad (3.13 per cent), Faridabad (2.42 per cent), Chennai (2.26 per cent), Jaipur (1.79 per cent), Chandigarh (1.55 per cent), Delhi (1.49 per cent), Bhopal (1.30 per cent), Meerut (1.05 per cent), Bhubneshwar (1.02 per cent), Bangalore (0.92 per cent), Pune (0.90 per cent), Raipur (0.65 per cent) and Mumbai (0.45 per cent).
Only four of the surveyed cities saw increase in property prices. These were Nagpur (3.07 per cent), Lucknow (2.19 per cent), Surat (1.43 per cent) and Dehradun (0.55 per cent).
The real estate industry has been battling a phase of low sales and high inventory. To boost demand, developers have even been offering freebies on purchase of flats for the past few quarters.
As at the end of March this year, the inventory level in NCR had risen to 31 months from 15 months at the end of March 2010. During this period, the inventory level in the Mumbai Metropolitan Region (MMR) rose from 17 months to 40 months. For Hyderabad, it reached 49 months from 23 months, according to data from real estate research firm Liases Foras. Inventory denotes the number of months required to clear the stock at the existing absorption rate. An efficient market maintains an inventory level of 8-10 months.