| Is India's residential property mkt headed for hard landing In 1959, Charles E Lindblom, the American political scientist, published a paper in the Public Administration Review entitled The Science of 'Muddling Through'. Over 60% of residential launches in the top seven cities (mostly in cities other than NCR and Mumbai) are priced in the range of Rs. Is the Indian residential property market headed for a hard landing? During the slowdown in 2009, prices in some on-going projects witnessed corrections while a wide variety of projects maintained stable prices. Prices then increased speedily by as much as 30-40% (mostly in newly-launched projects) across Indian Tier I cities until end-2010, followed by slower growth in 2011. His verdict was that the practical individual must follow the branch approach - applying the science of muddling through. The residential property market in India, particularly in the Tier I cities, has remained sluggish for the past 12 months, with significantly lower sale volumes when compared to the high absorption rates of 2010. While others require comprehensive evaluation, determining residential property prices usually entails a trial-and-error approach. Developers continually assess the market with trial price levels to raise sales in on-going projects. However, during a slowdown, developers try to register sales by launching new projects which are different from on-going projects - and priced much lower than the market average (the price levels being decided by the root method of decision making). To avoid adversely signalling the market (which could lead to a downward spiral) prices in on-going projects are kept 'sticky-upward'. In the first phase, negotiations are held behind closed doors to test the market's appetite. In these uncertain times, the question arises whether strategic decision-making for residential property developers to improve sales should follow the root method - a comprehensive evaluation of options, or the branch approach - a process of muddling through. This is fundamentally a process of 'muddling through', in which residential prices provided by developers in on-going projects rise like rockets but fall like feathers. When the going gets tough, prices are discovered (hence the term 'price discovery'). They have been able to generate sufficient cash flow through the gradual process of price discovery, and a lot of factors are in their favour in the near term. At this stage, the market is said to have witnessed a correction. New project launches, slow in Mumbai and NCR during 1H11 due to approval and land acquisition issues, have started to pick up and should improve cash flows for developers with land banks during 2012 With rising input costs, developers do not want to sell below a threshold which does not justify their minimum replacement returns . |
Tuesday 3 April 2012
Is India's residential property mkt headed for hard landing
